Average Retirement Income

The average retirement income required differs from person to person as we all have different dreams and a different standard of living. For this reason, your retirement goals will probably not be the same as those of your friends, co-workers or family members.

Most financial advisers agree that, you will need a lump sum equal to between ten and twenty times your desired level of income when you retire.

So if you want to retire with an income of R 120 000 per annum you would need a lump sum of between R 1,2 million and R 2,4 million. Needless to say it takes many years of disciplined saving to ensure financial freedom when you retire, and the recent global financial problems have meant that average retirement income has decreased dramatically.

Added to this fact, people start working later, retire earlier and livelonger. Unfortunately, unless you have taken care of your health, it could deteriorate quite substantially as you age, further eating into your retirement income.

Women, especially, live 25 to 35 years beyond age 65 which means that their pension has to last that much longer.

According to the South African Annuitant Standard Mortality Tables, 51% of female pensioners retiring at age 65 will live more than 20 years after retirement, 18% will live for more than 30 years and 9% for more than 35 years.

This could mean making some sacrifices now in order to make fewer sacrifices when you retire.

In the past you would start saving at 25 years of age, stay with the same fund until the retirement age of 60 or 65 years, and retire with an income replacement ratio of between 75% and 85% of final salary.

Unfortunately, few people stay in continuous employment with one company for thirty or forty years. Middle and upper income groups tend to move from one job to the next in search of experience and increased wages and they don’t preserve their pension fund pay outs.

If you change jobs three times in your working life and withdraw 50% of your retirement benefit each time, you will reach retirement with a replacement ratio of only 30%!

Matters are further complicated by pension fund changes. Over the past decade, the retirement savings environment has converted from a defined benefit environment to defined contribution, where the employee accepts all the risk.

In a defined benefit environment the employer guaranteed a predetermined pension whereas with a defined contribution pension your final pension hinges on the performance of the underlying assets in your pension fund.

Also the 2008/9 recession has had a major impact on the average retirement income.

One thing you can be sure of is that the average pension fund will not deliver sufficient capital to maintain your living standards after retirement.

So what should you be doing to make sure you save enough for a retirement nest egg?

First you need to calculate how many years you plan to work and how many years you will need to provide for yourself or spouse after retirement, to determine what additional savings you need to make.

Of course these calculations are all fairly irrelevant as you can’t know exactly what these figures will be, but you have to have a figure in mind based on the average retirement income for your environment, or you will be at a disadvantage from the start.

Other points to take into account :

•Review your portfolio regularly and make sure you understanding how the market movements can affect your fund.

•If you change jobs make sure that you preserve your retirement savings from your fund. This means either transferring your money to your new employer’s retirement fund or investing it in a preservation fund.

•Consider increasing your monthly retirement fund contribution to the maximum tax deductible limits of your salary, and maintain this premium for as long as possible.

•Start saving as early as possible.

Should you rely on your pension fund only?

•Savers, particularly those who get a late start, can use supplementary savings vehicles such as unit trusts and direct equity investments.

•Acquire growth assets, such as property.

•Invest in a variety of assets in percentages appropriate to your individual situation and prevailing market conditions.

•Include gold in the form of bullion and rare gold coins in your portfolio.

Unfortunately, the only hope for many people is to continue working, and it is believed that the current batch of retirees could be the last.

Obviously it is not possible for everyone to stay in formal employment indefinitely, especially if you have not aged gracefully, and the answer is to build up a home based business which you can pursue in your spare time and do full time after retirement.