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
