free investment advice logo

Here's the deal: You may read the information on the site for free. As and when I have the time I'll add new articles, taking into account any questions which have been asked. For legal reasons, please do not consider anything on this site to be advice - the only free investment advice is to apply your own mind. If you want to request that an article be written, then email me. I have limited time available, and will prioritise the work accordingly, so please be patient. Email me at invest@freeinvestmentadvice.org.

Are you on track for retirement?

leave a comment

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!

The person

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.

Methodology followed

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).

Key assumptions

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):

How much she should have saved

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

blog comments powered by Disqus

Due to regulations, our emails and this entire website should be considered as having been set up for entertainment purposes alone. Expect errors and omissions. Investment in shares and other financial instruments should be conducted by professional investment experts only. Any use of the information on my websites, emails and newsletters is at your own risk, and by using it you agree that the owners of our websites, authors and associated parties wont be held liable for any losses suffered as a result of using the information. None of the information should be construed as being advice. Our newsletters, articles, discussions and website are not an offering for any investment. It represents only our and others' opinions. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. Illustrations, forecasts or hypothetical data are not guaranteed and are provided for illustrative purposes only. There are risks involved in buying or selling a financial product. Past performance is not indicative of future performance. Any investment values given are not guaranteed. Investment returns can be volatile. When investing there is always the risk of losing all or a substantial amount of your investment, as well as the risk of illiquidity. There may be advertisements on some pages on this website, and we may earn income from these advertisements. We may earn commission on products invested in or annuities purchased. We cannot attest to the accuracy of the material presented here, and opinions expressed may be changed without prior notice. In any event our liability will be limited to R1, and any court cases must take place in Cape Town. You may contact us at invest@freeinvestmentadvice.org