Reader Question: I am 52 and recently got a better-paying job overseas. I intend to retire at 65. My goal is to secure financial freedom and save enough to last me my retirement period.
My background:
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Dear reader,
It looks like you have put a lot of thought into your financial future; well done! I’ll get to the numbers side of your plan later on in my response, but to start, here a few opening thoughts:
Careful consideration must be given to your product blend, as you need to make sure you have sufficient liquidity during retirement; you may live for 30 years post-retirement and a lot can happen in that time. Retirement annuities have limited liquidity, both pre- and post-retirement. Another consideration are the investment restrictions applicable to all pre-retirement products.
Ok, now we can get to the fun part: doing the calculations to check whether you’ll reach your retirement goal within the constructs of your planned savings. I have had to make some assumptions in order to do the financial projections. Assumption one is that you enjoy a net annualised return of 9% and inflation is 5% per annum; assumption two is that you do retire at age 65 and the third assumption is that once the car is paid off you save the additional R5 000 per month repayment.
The future value of your savings at age 65 would look like this:
Description |
Current Value |
Future value |
Existing RA and preservation funds |
R 389 000 |
R 1192 598 |
New RA |
R 7250 p.m. |
R 2150 366 |
New TFSA |
R 2250 p.m |
R 667 355 |
Bond money (8 years of payments towards savings) |
R 21000 p.m. |
R 2959 007 |
Car money (128 months of payments towards savings) |
R 5000 p.m |
R 1076 250 |
TOTAL |
R 8045 576 |
At age 65, your current required income of R16 000 per month translates to R30 170 using our assumed inflation. We ran the numbers using our return and inflation assumptions, and the good news is that you would only run out of capital at age 130. There are, however, three major things to consider in these types of calculations:
Following on from point 2 above, if we assume that inflation averages 7% instead of 5%, your capital runs out at age 96. Now keep inflation at 7% but drop your return to 8%, and you now risk running out of money at age 91.
Your safest plan will be to work as long as you can - and save as much as you can along the way. It’s important to remember to live, and to enjoy some of the fruits of your labour.
Good luck!
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