Do I have enough?

Given the turmoil in markets over the past 18 months, retirement is probably the furthest away from anybody’s mind.  The volatility in clients’ pension fund values has possibly even swayed clients to push out their planned retirement date as far as possible.

It is a well-known fact that retirement is considered to be one of life’s top ten most stressful events, because of the overwhelming magnitude of the decisions that need to be made when entering this stage of life.  One of the questions most asked by financial advisors’ clients is: “do I have enough capital to retire?”  The industry has been debating this question for decades and many methods and approaches have been devised to produce the best answer.

There is the so-called 4% rule which says that if you can live off 4% of your total accumulated retirement capital per annum, you have enough.  You need to add up all of your retirement savings – be it in your employer’s offered pension fund, your retirement annuities, your share portfolio or any other savings.  Let’s look at the numbers – assume you have saved up R3m, the rule says if you can live off R120 00 per annum or R10 000 per month (R3 000 000 * 4% = R120 000) you have enough.  

On the flip side, if you have an amount in mind that will cover your annual living costs you need to multiply that with 25.  In our previous example we used an annual amount of R120 000.  If you multiply that with 25, the answer is R3m.

Another approach is the estimation that you will need at least 70% of your pre-retirement monthly income to maintain the same standard of living once you’re no longer earning a salary.  Another way of looking at this is that you’ll need at least 15 times your last annual salary saved up at the time of your retirement. 

Regardless of which calculation you choose to use, these numbers are eye-watering high and the sad reality is that we only really pay attention to these numbers when we are close to retirement age.  It literally pays to start planning early to ensure a happy retirement.

If you have any questions or want to address financial concerns you might have, please contact any of the Bovest advisors.

Esmarie Strydom B.Com Investment Management(Hons)

Photo by Visual Stories || Micheile on Unsplash

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