How much do I need to retire comfortably in South Africa?
The amount you save for retirement would depend on your lifestyle needs. The way you could calculate how much you would need for retirement is based on your final income. You can use the following formula: Your current annual salary and multiply (x) by 15= this will give you a rough estimate of how much you will need for retirement.
Example:
If you earn R450 000 per year x 15 = R6 750 000 is an indication of how much you would need to maintain your current lifestyle when you retire.
*This is according to data found by FNB Retirement Insights Survey.
The 3 most common retirement savings accounts in South Africa
- Pension funds
- Provident funds
- Retirement Annuity (RA)
Pension funds
A pension fund is a workplace retirement savings fund that’s offered as a company benefit. You can only join a pension fund with an employer. While employers don’t have to offer these funds, it is usually compulsory for employees to join it if offered when they start working at a company. The way you contribute to this fund is usually monthly, and both yourself and your employer will make a contribution towards the fund.
Benefits of a pension fund
- Good requirement for companies offering it.
- You never had access to the money to begin with, so you won’t miss what you never had access to. It’s also still yours. It’s just for your future self.
- Can get good tax benefits.
Provident fund
A provident fund is very similar to a pension fund in that it is also a workplace retirement savings fund that your employer could set up for you.
Prior to 1 March 2021, a provident fund was different to a pension fund because you could take out the entire fund as a cash lump sum and be taxed on that. Now, however, like a pension fund, you must take out one third of the fund as a cash lump sum, and use the other two thirds of the fund to buy an income annuity to pay out a monthly pension.
What is an income annuity?
An income annuity is a financial product that is used to provide regular, monthly cash flow in exchange for a lump sum amount.
Preservation fund
A preservation fund is set up in the event of you changing jobs. When you change jobs, you can preserve your pension or provident fund that you’ve already accumulated using a preservation fund.
Retirement annuity
A retirement annuity is a retirement fund set up separately from your employer. It’s something you save and contribute towards on your own.
What is the 4 rule for retirement?
The 4 rule for retirement refers to the 4% rule. This rule states that you should be able to live comfortably with 4% of the total money that you've invested in your retirement fund for your first year of retirement. Following this, you could slightly increase or decrease that amount depending on inflation.
The two-pot system for retirement funds
The two-pot system for retirement funds will be in effect from 1 March 2024. This two-pot system was introduced in response to people having no money, even though they had retirement funds, to access during the Covid-19 pandemic.
What is the two-pot system?
With the two-pot retirement system, your retirement funds are split into ‘two pots’. One pot will comprise two-thirds of your retirement funds that you can only access after you are 55-years-old.
And, the other pot that comprises one-third of your retirement savings, can be withdrawn prior to your retirement age.
Thinking about using your retirement funds to pay off your debt?
"A large number of the salaried class are being squeezed by the recent rapid rise in interest rates and the increased costs due to inflation.
I am hearing horror stories about resignations and fabricated divorces to access pension funds to settle debts. These are very painful and often short term solutions that do not resolve the debt problem, but create bigger future problems.
Debt Counselling offers a simple respite from exactly these circumstances. You end the program debt free, credit worthy, and most importantly with your pension fund intact. Meerkat is helping thousands of clients deal with debt in a stress free way."- David O'Brien, Founder and CEO of Meerkat
Don’t use your retirement savings to pay off your debt. Instead, consider debt counselling. Let us give you a FREE call-back.
Johan signs up for debt counselling to reach his goal of being debt-free by retirement
Before Johan signed up for debt review (debt counselling), most of his salary was going towards financing his debt. Johan would not be able to achieve his goal of being debt-free by retirement if he had not decided to go under debt review.
With debt review at Meerkat, Johan was able to reduce his monthly debt instalment by 45% and the average interest rate for his debt was reduced from 21.56% to only 0.09%. He will be debt free by June 2028 thanks to Meerkat!
*Johan joined the City Press/ Absa Money Makeover Challenge 2023 and was advised to undergo debt review to achieve his goal.
