Jay Pillay: Don’t touch my provision for pension wallet!
Who’s going to pay you during your retirement of 20 years?
Let’s assume that you are twenty-something years old, brimful of enthusiasm, and in your first job. Your starting salary (gross) is R5 000 per month, and it’s now early 2026. Disregard the adrenaline rush that occurs at the end of each month, and take a giant step forward in time.
It is now 2066, you’ve worked for 40 years, and it’s time to retire. And you may quite easily be retired for twenty years, until you die in your sleep in December 2071.
Who’s going to pay you during your retirement of 20 years?
Before we answer that, the 40 years of work to 20 years of retirement is a fascinating ratio. This means that for every 12 months you work, you could be retired for six months (40:20, or 12:6)!
There’s a mind-boggling implication. Maybe you should spend only 2/3rds of every month’s salary on the current month – the other 1/3rd must finance two weeks of your retirement. Park this thought where it can simmer gently, for as long as it takes to influence how you manage your salary.
Now where were we? Yes, who’s going to pay you, now that you’ve retired? Your pension (as opposed to your salary) will come from money you have preserved to work for you, through your forty years of employment.
Let’s call this money your PfP wallet (a provision for pension wallet). If you have no PfP wallet, then all you’ll have is a state pension. At present, this is just over R2 300 per month. Idea: Talk to someone you know who has to get by on this pension.
If a PfP wallet will generate my pension in 2066, it’s relevant to ask, how much must I have in my PfP wallet right now, which will generate a pension equal to my salary of R5 000?
This is an excellent question. Now concentrate. Let’s assume that your PfP wallet is actually in a fairly safe bank account, earning 6% interest per year. To earn R5 000 per month, you’ll need R1 000 000 in your PfP wallet (5 000/6 x 100 x 12). Your job is therefore worth R1 000 000 in the bank. Think about that.
If you want to retire now, you need to have R1 000 000 in your PfP wallet. This is 200 times your monthly salary (1 000 000/5 000 = 200). This number will vary as interest rates vary, but it gives you a good feel for what you need to do.
You have forty years. Your long-term project is to have at least 200 times your monthly salary in your PfP wallet. You will not find this written anywhere in your conditions of employment.
How are you going to get 200 (or 150) times your monthly salary into your PfP wallet? Come now – you’re twenty-something years old, brimful of enthusiasm, and in your first job. I’m sure you already have ideas.
HAVE YOUR SAY
Like the South Coast Fever’s Facebook page
