A retirement calculator from Glacier

Brought to you by Glacier by Sanlam

A calculator to increase your odds of retiring well

  30 August 2016 00:01

Perhaps global market volatility has you rattled; your New Year’s resolution was to sort out your finances; or expectations of rising food prices and health care costs have you feeling nervous about your savings.Irrespective of your reasons, now is the time to take stock of your retirement savings and ensure that you have a comfortable nest egg waiting for you.

Calculating the size of an ideal pension can be overwhelming, especially for young adults. Part of the problem is not knowing where to start. Do you start saving by imagining the desirable retirement even if it’s 30 or 40 years away? Or should you start with what you can afford now?

Glacier by Sanlam has developed an online calculator that enables you to determine what the value of your monthly retirement salary will most likely be, in today’s money terms, based on certain variables, including how much you currently save per month. Users enter their gross monthly salary, existing savings, monthly retirement savings, the percentage by which retirement savings are increased every year and the type of portfolio they’re invested in.

 “As one of the largest market players in the retirement savings market, Glacier by Sanlam as an organisation felt that we have a responsibility to educate people about the importance of making adequate provision for retirement,” says Jaco-Chris Koorts, an actuarial consultant at Glacier by Sanlam.

“The calculator is 100% free to the public. There are no strings attached when you try it out. When we designed the calculator, we wanted it to fit in well with the #FutureFWD concept,” adds Koorts. 

Last year the company launched its first #FutureFWD campaign, aimed at making the intangible concept of retirement more tangible and dispelling the many misconceptions around it. 

If you are using Glacier by Sanlam’s calculator for the first time, it can be quite a shock to see the post-retirement income amount that you are most likely heading towards. Koorts says it’s better to get the potential shock now while there is still time to do something about it, rather than when it is too late. 

“You can still salvage the situation. It is possible to take remedial action to increase your monthly retirement provision or to realise your career will have to stretch to 65, for example,” says Koorts. 

Once you have put these remedial measures in place, you can then repeat the calculator exercise at a later stage to monitor your progress toward a comfortable retirement. 

It pays to start early

Starting to save towards retirement from early on in your career will make a massive difference to your likely retirement income. The later you start to save towards your retirement, the larger the percentage of your income that you need to save.

“For most people, it’s probably sensible to visualise what you would like your life to look like in retirement. This will give you a clear objective that you can save towards, rather than saving for an uncertain retirement goal,” says Koorts. 

While savings depend on circumstances, Koorts says that 15% of your salary, is a “good” starting amount, even though he admits that it is still likely too low.

Of course, for 20-somethings, saving between 15% to 20% of their income may be daunting if they are also trying to settle student loans. However, Koorts says despite the financial pressures faced by younger workers, they can take advantage of the power of compound interest – “the eighth wonder of the world”.

Explained in straightforward terms, compound interest is interest on interest.

For example, if you invest R100 at an interest rate of 10%, at the end of the year, you will have R110. If you were earning simple interest, at the end of the second year, you would have R120 in your bank account because interest is only earned on the capital amount.

In contrast, with compound interest you do not only earn interest on the capital amount, but you also earn interest on the interest that you have earned to date. In our example above, you would still have R110 at the end of the first year if the interest was compounded annually. However, at the end of the second year, you would have a total of R121, as you are not only earning interest on the capital amount but also on the R10 interest that you have earned to date.

The beautiful aspect of compounding is therefore that as you put more money into your investment, and the longer the investment time horizon, the harder the power of compound interest starts to work for you, leading to exponential investment growth at the end of your investment term.

You can access the calculator on https://www.glacier.co.za/personal/retirement