Finance 101:  Retirement part 2 – do you have enough to retire on?

Last month we looked at our assets and liabilities – this month we will see how we are tracking towards our retirement. We will look at our total monthly income and deduct from that our expenses we don’t live on (such as mortgage bond deductions, tax, our savings etc). This will leave us with our current “living standard” or “take-home pay”. Then we will calculate a notional pension at today’s date, based on our retirement savings and investments, and see how on track we are to a comfortable retirement. It is important to do this regularly as a) our circumstances will change during the course of our life, b) how we are tracking towards retirement changes as we get older and c) it is good to know where we stand at least on an annual basis. Only 12% of people who make retirement payments actually achieve their desired lifestyle on retirement. Let’s continue from last month’s example and work out our current take-home pay and compare this to what our current pension would be – logistapta This tells us our living standard or take-home pay is R26,302 a month. Our monthly living costs such as groceries, petrol etc would come off this. Then we calculate how much your investments will pay you today. Looking at last month’s assets and liabilities, we get – logistapta2 This shows that with assets of R1,505,000 yielding 5% p.a. income we would earn R6,271 per month which means we are currently tracking at 23.8% of our desired retirement income funding. The first thing to look at is our age. If we are in our thirties it is fine but as we approach retirement this ratio should get close to 1. As an indication, this is where we should be – logistapta3 In other words if we are 40 today, the adequacy ratio should be 31% but, as above, we are at 23.8% and thus should make an effort to earn more and/ or to reduce our expenses. This raises many questions such as – are we living well on this R26,302 of monthly income? If not how much more do we need to earn to be comfortable with how we live? This is a fundamental point and worth thinking through. Do we need to reduce our costs, do we need to restructure our investments or do we need to find ways to make more income? It needs to be stressed, these are general guidelines only – ask us for advice on your particular circumstances.  You won’t make a more important financial decision, so it is worth spending time and energy to get this right.  You need to consider all the factors that influence your life and update them at least annually to see how you are progressing towards retirement. © DotNews, 2005-2013. This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein.  Always contact your financial adviser for specific and detailed advice.

This entry was posted in Uncategorized. Bookmark the permalink.