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Are you on track for retirement? |
Here are a couple of case studies. I must emphasise from the start that these are case-specific studies, and in all likelihood they wont apply to you (Give me a shout if I can do something similar for you). In any event, even for the specific case, there are some big assumption which are unlikely to be borne out, so take the numbers with a bucket-full of salt, they're more than likely not to be correct!
Let's look at a female, who is single and is certain to still be single at the age of 65, when she wants to retire (i.e. wont require a joint-life annuity). She wants to know whether she is on track with her savings to retire at 65.
Inflation-linked annuities have their issues (pensioner inflation is different to lagged consumer price inflation), but are probably the closest match to post-retirement pensioner liabilities. So I got a single-life inflation-linked annuity quote for a lady aged 65 (no guarantee period) from the Sanlam E-nnuity. For R5m compulsory money she would on the 16th August 2012 have been able to purchase a monthly pension of R24,275 (increasing by lagged CPI inflation for the remainder of her life). To make up for the fact that pensioner inflation is usually higher than CPI inflation I added an extra 10% requirement - I have no idea whether this is enough, it's a complete thumbsuck, and some items like medical expenses can be very volatile on an individual basis (I was reading that on average half your medical expenses in your life occur in your last year of life).
Using the following key assumptions, I then calculated the multiple of the required pension that she should have saved by each birthday (it is important to note that because these assumptions are unlikely to be borne out, all the numbers are merely rough estimates):
Annuity rates don't change (of course these will change, but to what I have no idea).
Lagged CPI inflation plus 10% of the purchase price will be enough to cover increases in pensioner inflation.
Annual new contributions to retirement savings as specified in the table below.
Salary currently equal to required pension, and salary increases at the rate of inflation.
Net of expenses, real return on assets of inflation+3% (very unlikely to work out this smoothly, and the calculations are sensitive to this).
All assets are in the form of compulsory money.
Not married, no need for a joint-life pension at time of retirement
Tax has been ignored
The bottom line is that a guestimated 18.9 times the required annual pension (i.e. if you had to retire today, how much annual pension would you need) needs to have been saved up by the age of 65, and here's an estimate of how it would have had to be built up, which should give a rough idea of whether enough has been saved at each age:
Birthday |
Multiple of required pension she should have saved by the time of turning that age. |
Multiple of required pension she should have saved by the time of turning that age. |
15% contribution rate |
0% contribution rate |
|
65 |
18.9 |
18.9 |
64 |
18.2 |
18.3 |
63 |
17.5 |
17.8 |
62 |
16.9 |
17.3 |
61 |
16.2 |
16.8 |
60 |
15.6 |
16.3 |
59 |
15.0 |
15.8 |
58 |
14.4 |
15.4 |
57 |
13.9 |
14.9 |
56 |
13.3 |
14.5 |
55 |
12.8 |
14.0 |
54 |
12.3 |
13.6 |
53 |
11.7 |
13.2 |
52 |
11.3 |
12.9 |
51 |
10.8 |
12.5 |
50 |
10.3 |
12.1 |
49 |
9.9 |
11.8 |
48 |
9.4 |
11.4 |
47 |
9.0 |
11.1 |
46 |
8.6 |
10.8 |
45 |
8.2 |
10.5 |
44 |
7.8 |
10.1 |
43 |
7.5 |
9.9 |
42 |
7.1 |
9.6 |
41 |
6.7 |
9.3 |
40 |
6.4 |
9.0 |
39 |
6.1 |
8.8 |
38 |
5.8 |
8.5 |
37 |
5.4 |
8.3 |
36 |
5.1 |
8.0 |
35 |
4.8 |
7.8 |
34 |
4.6 |
7.6 |
33 |
4.3 |
7.3 |
32 |
4.0 |
7.1 |
31 |
3.7 |
6.9 |
30 |
3.5 |
6.7 |
29 |
3.2 |
6.5 |
28 |
3.0 |
6.3 |
27 |
2.8 |
6.1 |
26 |
2.5 |
6.0 |
25 |
2.3 |
5.8 |
24 |
2.1 |
5.6 |
23 |
1.9 |
5.5 |
22 |
1.7 |
5.3 |
21 |
1.5 |
5.1 |
20 |
1.3 |
5.0 |
19 |
1.1 |
4.8 |
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