Why retirement savings needs are increasing
11 November 2016
You can also listen to these podcasts directly from the Old Mutual app, which is available here.
On mobile, on digital, on demand, this is Old Mutual Live, Money Coach, hello and welcome, my name is Chris Gibbons. Retirement is a big word. But one which most people aspire to achieve, a safe, financially secure period of your life in which you no longer have to go into the office nor worry about where the pennies are going to come from.
But the reality is that most people never quite achieve that goal and retire with considerably less in the bank than they in fact need. Against that background we’re joined now by Jillian Howard, author of The Best Pocket Guide Ever for Family Finances. Jillian, I know you’ve also written an entirely separate book devoted to this topic, so it clearly contains a substantial number of things that we need to think about. Where does one start?
15% from the day you start earning
Jillian Howard: I think the best place to start is with your first pay cheque. People don’t realise how it’s a lifelong process to save up for retirement. You should be saving about 15% from day one, from your first pay cheque.
CG: Is there a magic number, the amount I need to save to replace my salary when I retire?
JH: It used to be 10% and then people were projecting at about 75% of your salary that you would receive when you retire. But I think it’s safer these days to aim for 15% of your salary. That would bring out to roughly the same amount of pension as your salary at retirement.
Of course that, you then have to factor in inflation for the years that you are retired. Let’s say 10-15-20 years after you’ve retired. If you save 15% generally and you’re not too spendthrift when you retire, that should carry you through.
CG: As you go down this road, using the tax breaks available is important?
JH: Yes, it is. If you take into account the tax that you get back every year, depending on what your tax is, let’s say an average person’s tax is 30%, you’re getting a 30% discount on whatever it is that you save. If you take that 30%, at no extra cost to yourself and put it into retirement funding, then you’re jump starting your retirement funding a lot.
Don’t push retirement saving down the list
CG: Saving for retirement therefore should always come first, ahead of that holiday or the new car or whatever?
JH: That’s right. When you start your retirement planning, quite often there’s a deduction from your salary and that will go into a pension fund. If that’s not going to be enough, if it’s not 15% for example, then you should supplement it with a retirement annuity. That money should come out of your bank account every month before you spend money on anything else, on lifestyle or anything else.
CG: There are also other ways of approaching this problem that we need to consider because in general we are all living much longer, thanks to breakthroughs in medical science.
JH: Yes, we are, we’re living a lot longer, so it would be prudent to work a lot longer, I think. If you’re going to be living until 90 or 100, then you need to work until 75 maybe rather than 65.
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. A final question Jillian, is retirement all it’s cracked up to be? I’m looking around at me and I think, I’m definitely going to continue working for as long as I am physically able. What’s your view?
Retirement is a bit of a myth
JH: Okay, in the retirement book that I did write specifically, I wrote there in the first chapter that retirement is a fad. It’s only the last I think 80 years that people actually had retirement. In the history of 5 000 years that we’ve been around on the planet, maybe longer. Only 80 years is where a retirement was introduced as a concept and worked for a while.
I think for my parents’ generation or their parents’ generation, but now it’s not enough. Retirement has changed so that people haven’t saved enough when they retire and the funds themselves don’t pay out until you die, they just pay you a lump sum out. Then you must make do with it. It’s totally changed.
CG: Do you intend to retire?
JH: No, not until I’m not physically able to actually work, I don’t intend retiring no. So you’ve got to look at enjoying the work that you do as well.
CG: And of course, in retirement you could also supplement your income by working part time.
JH: Yes, you can. I think quite a few people do that. They retire at 65 and then take a half day job in something they enjoy, so they supplement their retirement that way.
CG: Many ways to skin that cat! This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons. I’ve been talking to Jillian Howard, author of The Best Pocket Guide Ever for Family Finances. Jillian, I know your book is available in all good book stores, can I also get hold of a copy online?
JH: Yes, you can, it’s on takelot.com and then overseas on Amazon.
CG: Excellent, remember, please feel free to get in touch any time if you have any questions for me or topics you’d like covered on Old Mutual Live Money Coach. Just send them direct to me at email@example.com, I’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.