Finance Minister Pravin Gordhan said last week that a key constraint of the South African economy is the low levels of savings and hinted that Treasury would be taking measures to boost confidence in savings mechanisms in months ahead.
According to Jason Garner of acsis, in light of National Savings Month in July, consumers should reassess their savings habits as well their financial plans regularly in order to ensure that what they are putting away is in fact enough in the current economic environment.
He explains that, if not regularly reviewed, financial plans can potentially become irrelevant, which in turn could result in financial failure, especially in the current financial climate.
"According to research conducted by acsis, the financial security of pre-retired individuals with a financial planner and an updated financial plan in place is significantly higher than those without a financial planner. This is a clear finding that an evolving financial plan and the use of an expert in these matters significantly empowers people and contributes to their financial well-being."
Garner explains that if an individual at age 25 develops the habit of saving 10 percent to 15 percent of everything he or she earns before retirement, they will give themselves the best chance of being part of the six percent of SA’s population that currently retire comfortably.
"This means that they will retire on more or less the same income they were earning before retirement."
When it comes to how much to save for retirement, the table below provides a rough guideline, based on certain assumptions (salary is R120 000pa, no other investments, return on savings is 10 percent, 85 percent of salary needed at retirement at age 65, expected to live to 90, earnings compounded and assumed net of fees, inflation at six percent and pension escalating accordingly).
He says that the harsh reality is that if an individual does not save in line with these assumptions, they will more than likely not be able to live the lifestyle they are accustomed to in retirement.
How much should you save?
- At age 25 you need to save 10 to 15 percent of your salary to retire at 65.
- At age 35 you need to save 20 to 25 percent of your salary to retire at 65.
- At age 45 you need to save 40 to 45 percent of salary to retire at 65.
Garner says that in order to review a financial plan, the individual firstly needs to determine his or her current financial situation.
Article continues on page two...