Retirement planning: when the maths doesn’t math

Only 6% of South Africans are financially ready to retire, largely because they start saving too late or dip into their savings along the way. The key is to plan early, contribute more than the minimum where possible, and review your savings with an adviser. A retirement annuity of as little as R300 per month remains a tax-efficient way to boost your savings and makes a meaningful difference over time.

Your Net Replacement Ratio (NRR) is the percentage of your final working income that you will need each month throughout your retirement. A common target is 70% to 75% of your current income, assuming that costs like debt and commuting fall away. For example, if you earn R10 000 per month in your last working year, a 75% NRR means your income will be about R7 500 per month during retirement. In other words, your NRR helps translate ‘retirement’ into a practical monthly budget.

Compound interest – growth on growth – can do the heavy lifting in your investment portfolio, especially in the years just before retirement. That is also when you may consider early retirement. Don’t make this decision without your adviser. When you withdraw from your retirement savings, you also withdraw future compounding. Also, avoid cashing in just because you can.

When you stop working, your savings must convert into a sustainable income. If you have saved enough, this is where your years of discipline pay off. If not, you may need to adjust your retirement date, your spending, or your expectations. You can compare options and avoid costly mistakes. Naturally, key post-retirement variables include how long you might live, inflation, medical costs, sequence risk (drawing income when markets are down) and your drawdown rate. Together, these factors determine whether your capital will last as long as you do.

A financial adviser who builds a long-term relationship with you and acts as a financial coach can add meaningful value – potentially more than 4% in returns – to your investment portfolio . It is in your interest to stay close to your adviser at every life stage so that you have more options and investment opportunities to explore. Like an architect designs a home, your authorised adviser designs a holistic plan and portfolio around your goals, needs and circumstances. Your relationship with them is critical on your journey to a confident retirement.