Time the key for retirement saving

Cape Town - Most of us are dreaming about the day when we will retire and spend our older years in peaceful bliss. For some that dream might only realise in 30 years, for others it might be around the corner. 

The big question, however, is whether you will be prepared financially when retirement eventually comes. 

A recent survey done under Fin24 users found that 60% of readers are confident that they will be financially comfortable in their retirement. 

Another interesting finding from the survey was that 21% of readers, 1 in every 5, do not hold any retirement savings products such as a pension and/or a retirement annuity.  

Reality and challenges

It has been widely discussed that in the past many South Africans haven’t made sufficient provision for retirement and therefore face difficulties in making ends meet during their senior years.  

“Research conducted by FNB Savings & Investments has found that only 1 in 3 senior savers is in fact retired, despite their average age of 64,” says Aneesa Razack, Head of Strategic Growth at FNB Savings & Investments. 

Nearly 15% are employed on a part-time basis, whilst around 50% of the senior saver market is still working full time. These full-time workers are either employed in the private sector or pursuing their own business interests.      

“Many believe sitting around and doing nothing during retirement will cause them to age quicker and so decide to continue with or start up their own businesses. The significant proportion of the market that are still employed however highlights the fact that a definite need to earn money still exists in this late stage of life,” continues Razack.  

The need to earn money is further underscored by the fact that, according to FNB’s research, more than 40% of senior savers are still paying off sizeable debt.

“Living off a pension or annuity income can be very challenging if a significant portion of that income is allocated towards reducing debt”, says Razack. 

Many also put off saving towards their retirement due to life’s unforeseen challenges on finances, such as the financial impact of having children later in life, second families, etc.

Another challenge is that, with the advances in medical science, people are living longer which means that they have to save for a longer period in retirement. These challenges all translate into having to increase your provision for retirement.  

Time matters

When it comes to saving for your retirement, time is your ally – the longer you have, the better.

To illustrate this principle, Razack uses an example of 3 different age groups and looking at their retirement savings in ‘number of paycheque’ terms rather than monetary value.

Sifiso aged 25, John aged 35 and Theo aged 45 would all like to retire at the age of 65.  For the example, the following assumptions are made:

* They have made no provision for their retirement up to this point;
* They save 15% of their gross annual salary at the end of every year till they reach 65;
* Their investments will grow by 8% annually in nominal terms;
* They will require the same amount of income in retirement as what they earned before retirement; and
* Tax implications are ignored.


NameCurrent ageNumber of years to age 65Number of paycheques received per yearNumber of paychecks received till age 65% paycheques saved (annual)Total savings at age 65, expressed in terms of paychequesTotal savings at age 65, expressed in terms of annual salary
After 40 years of saving, Sifiso will have sufficient savings to last him 39 years in retirement, whilst John – starting 10 years later – will have only 17 years of provision.

Theo is the worst off. Despite saving regularly for 20 years, he will only have the equivalent of 7 years of salary at the age of 65.

If John would like to be in the same position at the age of 65 that Sifiso will be in (i.e. 39 years of retirement provision), he will have to increase the percentage he saves from 15% to 34% over the entire course of 30 years that he will be saving.

If Theo would like to be in the same position at the age of 65 that Sifiso will be in (i.e. 39 years of retirement provision), he will have to increase the percentage he saves from 15% to 85% over the entire course of 20 years that he will be saving.  

“The principle illustrates two main things – one, that no one can really afford to wait before starting to save for their retirement and, two, that by starting to save early, reaching your retirement goal can prove to be much easier by requiring a lesser amount to be saved regularly,” says Razack. 

“The reality is that many people only start to seriously think about and plan for retirement when they are in their late 40s or early 50s, when ‘one day’ isn’t that far off any more and reality starts to kick in,” states Razack. 

Don’t wait, start saving for your retirement today!

- Fin24

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