RETIREMENT

Have you ever considered saving for retirement? Are you currently on a pension fund at work? Is that fund enough to sustain your lifestyle after you retire? These are all the questions you should ask yourself. An estimated 6 in 100 South Africans will retire successfully and maintain their lifestyles without ever having to revert back to working. The remaining 94 will either continue working or are forced to come out of retirement a few years after retiring in order to generate income. Some will be supported by their children until they pass on. Lets take a practical look at why most people wont be able to retire successfully.

In this example I will not adjust figures for future values or inflation, as the objective is to simply demonstrate the concept. Figures in South African Rands.

Laydon is a 25 year old male, its his birthday and he is starting his first job today. He works for an admin company and his Cost to company package is R 120 000 per annum, which is R10 000 per month. So from the age of 25 to 65, he has 40 years of work ahead of him. This translates into 480 months which means 480 paydays (40 years X 12 months).

Lets assume throughout his career his Package remains the same at R120 000 per annum. He contributes 7.5% to his pension fund, and his employer matches this contribution and also contributes 7.5%. Thus his total contribution is 15% per month to his pension fund. Note the employer contribution is included in the CTC package, so the monthly contribution is simply R10 000 X 15% = R 1500

Thus if we take R 1500 and multiply it by 480 months = R 720 000
His total savings over his career is R 720 000.
If we look at his annual salary at the time he retires its R 120 000, and his lifestyle is based on this income.
So if we take R 720 000 and divide it by R 120 000 to see how many years his covered himself for,
R 720 000/R 120 000 = 6 years

Note that in reality inflation, salary increases and pension fund growth will all affect this calculation. These were ignored to show the principle behind the calculation. 

Conclusion
Laydon has only covered himself for 6 years after retirement, and if he goes on to live until the age of 80, it means that from 65 - 71 he can live without working, but from the age of 71 he will have to start generating  an income again, and this can be done either by working again or by getting monthly income from his children.

This is the reality that many Retired South Africans will face if proper retirement planning is not done.