Imagine no longer having to worry about that 9-5 day, the stress of beating traffic to work or office politics? While most people would love the luxury of being able to retire early, in an increasingly tough economy – those days seem long gone.


At the moment the average retirement age in South Africa is sitting at 60-years-old, meaning that people are having to work harder and longer in order to retire comfortably and ensure they don’t run out of that nest egg.


But when it comes to prepping properly for retirement, what exactly is the rule of thumb for measurement? Discovery explains that most people work off of the 4% rule, which states that “if retirees withdraw 4% of their savings annually (adjusting this amount for inflation every year thereafter), their nest egg will last at least 30 years.”


An example of the 4% rule shared by Discovery, is where someone earning R480 000 a year would need a replacement ratio of 90% of their salary, which is R432 000. Then, in order to ensure that you don’t use all your saved retirement capital in 30 years, R432 000 should be 4% of your total savings. This means you would need R10.8 million saved in order to draw 4% - or R432 000 – annually once you retire.


Another calculation people have relied on for years is the rule of 300. Simply put, you take whatever your monthly expenses are and multiply that by 300. For example, if your monthly expenses are sitting at R22 000, you will need R6,6 million to retire comfortably.


The two calculations above seem all fine and well but what about inflation? We know all too well that the price of goods and services rises every year, so you need to factor inflation into your withdrawal rate for each year that follows. It’s important to remember that the 4% and 300 rules assume that you too will be earning above inflation year-on-year.


While everyone may have their own calculations and expectations when planning for retirement, it’s important to note that planning – however in-depth it might be – needs to be considered. Seeking the advice of a financial advisor is one of the best ways to iron out what will work for you and your family.


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Disclaimer: bsmart does not provide financial advice. The above article is for information purposes only, to share current economic and financial topics and trends. Please consult a suitable and qualified financial services provider if you require financial advice.