How much should I save for retirement?

22seven
3 min readJul 21, 2022

We all know we have to save for retirement. (Like, seriously, guys.) But it’s not always clear how much you should have saved by certain points in your life.

Research by Liberty shows that half of all working South Africans aren’t putting any money away for their retirement. That’s a scary statistic. Equally scary: Less than 10% of South Africans have made provision to ‘retire comfortably’ by the age of 65.

It’s enough to make you want to bury your head in the sand! But don’t be an ostrich. The point about saving is that a little is always better than nothing. Use the tables below as a guide and start putting money away now…

So, how much do I need to save?

Sorry, that answer doesn’t exist! Because of constantly changing market and economic conditions, it’s impossible to predict exactly how much you’ll need to retire comfortably one day. The best you can do is to look at your cost of living now, think about how you want to live when you stop working, and make some assumptions about inflation and investment growth.

Luckily you don’t need to be an algebra whizz to do this. There are hundreds of retirement models out there — some use age as a meter, others use the number of years worked. Let’s look at age first.

According to T. Rowe Price, an international investment company, you should have saved one year’s salary by the time you’re 30. In other words, if you earn R100,000 a year and you’re heading for the big Three Oh, you should have already saved R100k towards your retirement. (By the same logic, you should have saved half your annual salary while you’re in your 20s.)

Based on certain market assumptions*, they reckon you should be able to live off 4% of your savings annually, from age 65 to 95. Here’s what that would look like:

* Assumptions: Household income grows at 5% until age 45, and at 3% thereafter. Investment returns before retirement are 7%. The person retires at age 65 and begins withdrawing 4% of assets. Retirement savings are withdrawn according to tax laws.

But what if you spent your 20s chasing sunsets as a scuba diving instructor and you’ve only recently settled into a job with a consistent income? Sometimes it’s more helpful to think of saving for retirement in terms of the number of years worked, not your age. Allan Gray assumes you’ll need around 75% of your final salary per year to be able to retire comfortably. Here’s what they suggest you save:

How on earth do I save that much?!

By starting right now! Remember, with a long-term investment, time does most of the work for you. Even if you can only afford to save a little bit each month, compounding will eventually start to work its magic. Read this to find out more.

Think you can do better than 65?

There’s an international movement called FIRE, which stands for Financially Independent, Retire Early. Basically, you work your butt off when you’re young and save like a demon, so that you can retire at 40 or 45. If the idea of living frugally now so you can enjoy the high life later on appeals to you, read this.

The important stuff

Don’t take our word for it: speak to a financial advisor who will look at your money situation and your goals and help you plan for retirement. Maybe you’re unsure where to start, maybe you don’t want to work until you’re 65, or maybe you just need someone to affirm that you’re on the right track. Chatting to a professional is always worth it. Good luck!

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22seven

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