The most prominent thing about the big picture, is the huge red zone. Yes, retirement could last for half as long as our earning years. Look at the calendar/table above. Forty-two years of working MUST fund 21 years of retirement. Said differently: From the time I start working, I will likely live for 3 periods of 21 years – but I’ll get a salary for just 2 periods of 21 years! My salary must last me a month now, AND half a month of every 252 months of my retirement (that’s 21 years)! That red sentence you just read, needs to be read again. Slowly.
So what must I do? Good question. And that gives rise to another good question. How much must I have (say) in a bank, to generate interest equal to my salary? Let’s assume two numbers here. I earn R6000, and 6% interest is reasonable. This means I receive an annual salary of R72,000. The amount I need to invest (capital) is given by this calculation:
Capital = 72,000/6 x 100
= R1,200,000.
That’s R1.2 million. What’s that in terms of my monthly salary, something I can understand? Let’s find a relationship between the two, by dividing the bigger by the smaller number, and call that our retirement factor.
Retirement factor = 1,200,000/6,000
= 200.
To have enough money invested to retire (if I retire NOW), I need 200 times my salary. This means that if I plan to retire in 5 years, I need to have very close to 200 times my salary available to generate a return close to my salary. If I have 40 years to retire, I’d better make a start NOW. All advisors recommend that you save for retirement from Salary Number 1. There are other important factors.
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If you change jobs, preserve any money you have in a retirement fund for its intended purpose. Retirement is never too far away to worry about.
Money you put into a retirement fund reduces the current tax you pay. This is a nice reason to save for retirement – but the main reason is the red zone.
As you approach retirement, strive to be debt-free. It may be better to own your own house, rather than to be a tenant. During the last 21 years of life, you are likely to be frail. Medical costs would form a much larger proportion of what you spend. You need a financial plan for this.
What should you be saving (investing) into the red zone? If you consistently save around 10% of your salary for retirement, you have a good chance of creating a pension equal to your salary.
Start …NOW. Talk to your financial advisor.
I am not a financial advisor. In My money, my business, my life I provide no more than uncommon sense about a lifetime of money management. And this should propel you to take action. Yes, you guessed correctly that I am going to repeat: Talk to your financial advisor.
Jay Pillay
Jay Pillay’s first two critical decades were spent where his first decade began – in Pietermaritzburg. After studying at ML Sultan Technikon in Durban (anyone remember that place?), he then joined the sugar industry, working in Tongaat, Durban, and Xinavane – a sugar mill village 120km north of Maputo.
Oh yes – there was a brief period of unfaithfulness, when he flirted with aluminium in Richard’s Bay. Upon retirement, he and his wife Dorothy – settled in Southport.
Jay began writing about salary management (for ordinary people living on a salary) in the early 2000s. Many of his articles were published by The Ripple Effect, a Durban-based corporate newsletter. In all his writing, Jay says he attempts to emphasise the big picture in salary management: it’s not just about making it to your next payday – it’s about making it to the end of your working life.
It’s not just about your working life – it’s about your retirement too. It’s not just about the cost of living – it’s about the cost of dying too. It’s not just about you as a salary manager – it’s about your dependants too.
This 16-part series is being published here for the first time. It would be invaluable for salary managers in the early years of their lives – who realize that salary management is a lifetime business.
Finally, it’s not just about reading stuff on salary management – it’s about careful thought (that means time, well invested), and then taking appropriate action.
There’s a second finally. To daughter Nikki, thank you for the picture.
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