You’re probably not saving enough for your retirement. That’s a warning many of us are familiar with. Yet, like the National Treasury’s widely reported finding that only 6% of South Africans can afford to retire comfortably, most of us believe it applies to everybody but ourselves. We tell ourselves that we are already contributing towards our employer-provided pension fund, so what’s the problem?

The problem, unfortunately, is that a pension fund is not always enough to secure a comfortable retirement.

Old Mutual’s Social Experiment in the second half of 2022 brought this home in a very real way. Eight typical South African families were asked to fill a shopping trolley with all the groceries they needed for a month. What they didn’t know was that when they got to the till, the item prices were adjusted to what they would be when the breadwinner retired. Their budget was then also adjusted for their projected income during retirement, based on their current savings trajectory.

The result? Every family was over budget. Some by 100%, others by as much as 800%.

As the participants put items back on the shelves to meet their future budgets, the realisation dawned on them that whatever they were saving for their retirement, it wasn’t going to be enough.

But how much is enough?

National Treasury’s oft-quoted 6% statistic is based on retirees having a pension of at least 75% of their final salary. However, inflation, personal circumstances and the prices of what individuals buy as well as other factors, all determine how individuals measure what is enough. That’s why we use a much more universal measurement as a yardstick – multiples of annual salary.

According to this benchmark, a male should have approximately nine times his gross annual salary saved up for retirement at age 65, while a female should have about 9.7 times hers.

From multiples to levers

The above introduces the question of when you can or should retire. We look at retirement age as one of the six levers we refer to when it comes to driving better retirement outcomes. These six levers work together to influence your retirement outcomes. They are:

1. Contributions

Quite simply, if you don’t contribute enough to your retirement savings, there won’t be sufficient to grow. Again, enough will ultimately depend on your time horizon and your investment returns – but we recommend saving at least 15% of your salary and aiming for a return of 5% above inflation over 35 to 40 years.

2. Investment strategy

Your investment strategy is important as this is where the heavy lifting happens and where compound interest should grow your investments. But that growth only occurs over the long term, and it relies heavily on the next lever.

3. Preservation

Preserving your current savings when you change jobs is essential. Fortunately, the new two-pot system being introduced to encourage and, in some areas, enforce preservation will go a long way to assist with this lever.

4. Your decision at retirement

A bad decision at retirement – particularly around how you spend or manage your savings – can undo a lifetime of good savings behaviour, so getting the right advice at this juncture is critical.

5. Retirement age

As mentioned earlier, your focus shouldn’t be on a specific retirement age but on when you will be financially ready to retire. If your employer insists on giving you the proverbial gold watch at an age that doesn’t work for your retirement planning (for example, at age 55 instead of age 65), you need to consider your options, such as working longer somewhere else or for yourself to postpone your retirement age.

6. Pensionable salary versus cost to company (CTC)

While your CTC is the salary you’ll need to replace with a pension in retirement, many funds use a definition of pensionable salary that is much lower than CTC. This can have a significant impact on your planning and calculations.

In conclusion, the best way to know when you could retire comfortably is to ask yourself when can you afford to retire? The answer: when your savings are at a level where you have a monthly income (after tax) that matches your living expenses.

Remember that retiring is a personal decision. You would need to take your savings and find a product (such as an annuity) that converts your savings into a monthly income that will grow as inflation rises. Then you need to compare that to your monthly budget.

As for how much you should aim to save and for how long, a good approach is to have a cumulative 31-year retirement-saving journey and aim to have 15% of your salary (after all costs) going towards your retirement savings.