“We work on an average age of 90, so the funding term in this case would be 25 years.”The general rule of thumb, to date, has been to save towards 60% of your current annual salary come retirement. Munsami says people are generally quite happy to save for their full shortfall to maintain their current lifestyle or better it.
“If a 25 year-old male, with the current income of R17,500.00 wants to retire in 40 years and maintain his current income (in future value) for another 25 years, he would need to contribute R5,759.00 per month to a retirement savings vehicle,” says Munsami.That's a 32% chunk of the salary. 10% above what the 2015 Nerdwallet report found to be a sufficient allocation. This is factoring in an average expected investment return of 10% annually. Plus an expected inflation rate of 7%, and a premium escalation rate of 5% per annum. We asked him what that would equate to in future value – a lump sum. The response? A jaw dropping R57,5 million. Christo Davel, 22seven CEO, explains that where debt and retirement are bidding for priority status in your budget, the question shouldn't be one or the other.
“The practical solution is to find money. We believe that there is almost always some money to be found ... it may be R100 a month or R1,000. Once you know where it is, then you can think about the ‘debt or retirement’ question practically.”