According to retirement expert Andre Tuck from 10x Investments there are three “old school” ways to “guestimate” how much you will need for retirement.
1: Multiply your final annual salary by 15
“Let’s say your take-home pay is R25,000 a month in your final year of working, giving you an annual salary of R300,000,” said Tuck. “To maintain your lifestyle after retirement, you’ll need around 15 times your annual salary, so 15 x R300,000, meaning a lump sum of roughly R4.5 million,” he said.
If you are hoping to do things you didn’t do during your working years, for example, travel, you should rather multiply your final salary by 17, or even 20.
2: Save R1-million for every R5,000 you want to draw down as a pension every month
You can also get a rough idea of how much money you’ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 you want to draw a month once you’re retired. So, if you want to draw a monthly pension of R25,000 a month, you will need to have squirrelled away R5 million by the time you retire.
3: Multiply your monthly needs by 300
One of the simplest calculations is to multiply what you think you’ll need per month (say R25,000) by 300 to determine the lump sum you will need to have saved (R7.5 million in our example).
This option gives a slightly higher figure than the other two options, which is a good thing, says Tuck.
Savings benchmarks based on age and salary can serve as a helpful way to track progress against saving for retirement, notes T.Rowe Price.
Saving 15% of income per year (including any employer contributions) is an appropriate savings level for many people.
Having one to one-and-a-half times your income saved for retirement by age 35 is an attainable target for someone who starts saving at age 25.
There is a lot of research showing that people tend to rely on approximations or rules of thumb when it comes to financial decisions.
T.Rowe Price notes that many financial firms publish savings benchmarks that show the ideal levels of savings at different ages relative to an individual’s income.
A savings benchmark isn’t a replacement for comprehensive planning, but it is a quick way to gauge whether you’re on track. It’s much better than the alternative some people use—blindly guessing.
More importantly, it can act as a catalyst to take action and start saving more.
"We believe having one to one-and-a-half times your income saved for retirement by age 35 is a reasonable target. By age 50, you would be considered on track if you have three-and-a-half to six times your preretirement gross income saved. And by age 60, you should have six to 11 times your salary saved in order to be considered on track for retirement."
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