Charl Burger wrote:
The argument that if you delay your savings plan, it will impact dramatically on the savings required, is well known; however, the assumptions contain a very misleading flaw, as inflation is not considered and calculations are based on multiples of current salaries.
The buying power of Sifiso’s paycheck will be more impacted on by the time he retires and therefore John and Theo will require a smaller multiple to maintain the same lifestyle. If inflation of 6% is assumed, Sifiso’s retirement check will only be worth 10% of its current value; John’s 18% and Theo’s 33%. Correcting the results given with the inflation effect would result in them saving 3.9, 3.1 and 2.3 times their annual salaries. From this it should also be clear that an 8% nominal return on investment with inflation of 6% will not result in adequate savings for all three of them.
Brett Redelinghuys, a financial consultant at Upstream Financial Services wrote:
As an advisor and as a consumer I find your articles very useful. I think, however, that your results of the Savings Survey are skewered, and not by you, but by the people who answered the questions.
I have been a financial planner for 16 years now and I would suggest I see on average 150 to 200 people per year. I have some new clients and existing clients. In that time, I would suggest that I have met between 15 and 20 people who would be able to retire financially secure.
My client base is middle and upper middle class and varies from 20 year olds’ to people who are retiring and have retired.
So to come back to your survey, the biggest problem is people don’t actually know what it will take to retire – they don’t understand the goal.
They don’t understand what they will need to finance that goal: how much to save. They don’t understand how long that goal is: how long the money needs to last. This “lack of knowledge” then makes them believe that they will be “ok”.