Are You Saving Enough for Retirement?

There is no universal answer to the question, 'What percentage of my salary should I save for retirement?' The correct answer depends on your age, current assets, desired lifestyle, other income sources, retirement date and the level of uncertainty you are willing to accept.

From a retirement-planning perspective, the core question is not simply how much capital has been accumulated. The specialist analysis considers sustainable future income, inflation, longevity, sequence risk, healthcare costs, tax and the flexibility required to adapt throughout retirement.

Specialist insight

Retirement confidence starts with knowing whether what you are saving today is enough to fund the life you want tomorrow.

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Start with the life you want to fund

Estimate the lifestyle you expect in retirement in today's money. Separate essential spending from discretionary spending and include realistic provision for healthcare, home maintenance, transport and family support.

This produces a future income requirement that can be tested rather than guessed.

Then work backwards to the required capital

The capital required depends on expected returns, inflation, retirement duration and how conservatively withdrawals should be managed.

Small changes in assumptions can create large differences over a 20- or 30-year retirement, which is why scenario analysis is more useful than a single precise-looking number.

Your current savings rate is only one input

A high savings rate may still be inadequate if retirement is close and capital is low. A lower rate may be sufficient for someone who started early and has built substantial assets.

Track progress against the future income goal rather than judging success only by the percentage contributed this month.

Retirement risk changes as you approach retirement

During accumulation, short-term market volatility can often be tolerated. Near retirement, a severe decline combined with withdrawals can have a much larger effect.

The investment strategy should therefore evolve with the role the portfolio must perform, not simply with age.

Review the gap regularly

Recalculate retirement readiness after major salary changes, career breaks, withdrawals, divorce, inheritance or changes in retirement date.

Closing a gap usually requires a combination of higher savings, longer time, lower future spending or a different investment approach.

Specialist review checklist

• What monthly income would I want in retirement in today's money?

• How much of that spending is essential?

• What healthcare costs are included?

• What proportion of my future income depends on investment assets?

• What changes now would have the greatest effect on the retirement gap?

  
  

Specialist perspective

A retirement plan becomes useful when it converts a distant goal into specific actions today. The earlier the gap is measured, the more levers are available to close it.

Discuss your strategy with a specialist

Speak to Chris Pretorius at New Adventures for a conversation about your financial strategy and the next step that is right for you.

Email: chris@newadventures.co.za | Call: +27 83 281 3949

New Adventures — Financial Strategy for Your Future.

This article is general information and does not constitute personalised financial, tax, legal or medical advice. Individual circumstances should be reviewed with appropriately qualified professionals.