One rule of thumb says that if you can live on 5% of your assets each year and if they are managed properly, your savings should last you forever, says Nic Horn, director and regional head in Durban of Citadel.
This means that, if you multiply your annual expenses by 20 times, you will roughly know what capital you need to retire comfortably.
The usual goal-post for ensuring your financial security and comfort at retirement, is usually said to be saving enough to replace at least 75% of your final salary as income in retirement.
Recent studies, on the other hand, suggest that just 8% of South Africans are saving enough to replace at least 75% of their final salary as their income in retirement.
There are varying reasons for this: because too little had been saved; savings had been cashed in at resignation or retrenchment; investment had been too conservative; or the investor had to continue to provide for children and parents.
“But the biggest problem lies in the fact that, for many, the process of retirement planning does not begin early enough,” explains Horn.
An additional concern for Horn is a number of fallacies persist about retirement savings.
Myth 1: DIY-ing your investments will save you money
In investing, diversification is everything, according to Horn.
In his view, as an investor, you need to seek professional advice on managing currency risks and diversification across different regions if you are to optimise your portfolio.
“Emotion is perhaps the single greatest danger in investing, and attempting to manage your investments on your own increases this risk exponentially,” he explains.
Then there’s also the problem of making the time to tweak your investment portfolio on an ongoing basis as markets and global conditions change.
Myth: Longevity is the enemy
The risk that you will outlive your money has become a source of increasing concern.
But living longer also means that you should be able to stay healthier and work for longer, according to Horn. Technology is a great enabler for working remotely or from home, for instance.
Rather than longevity in itself, the greater risk is rather becoming “redundant or obsolete”. Therefore, reskilling yourself is vital.
Myth: you need to avoid debt
According to Horn, it’s simply not realistic to expect people to avoid debt their entire lives. What’s more important is to distinguish between long-term and short-term debt.
“If you are financing a long-term financial asset such as a house, this in fact represents an investment, as the value of your property should hopefully increase over time,” says Horn.
“Before buying on budget, ask yourself why you are purchasing those items on credit,” he explains.
“Manage your debt wisely and use a budget planner if need be – the money that you save on interest repayments could substantially add to your wealth over time if invested instead.”