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Saving for Retirement at 40

Danelle van Heerde, 7 August 2018

They say “life begins at 40”!

While every 40-year-old would like to believe this, it undoubtedly also means that you’re getting closer to retirement. Which begs the question: What if you haven't started saving for your golden years at all?

Unfortunately people in their forties and fifties often have to play catch-up to ensure sufficient retirement contributions.

On the positive side, when you reach this age, you’re likely to be earning a comfortable salary. You are also, hopefully, investing in a Retirement Annuity (RA) which will give you tax benefits so you ultimately see more of that money.

It is critical – from age 40 onwards - that you consider investing the maximum contribution in an RA. That means the maximum amount that can be deducted for income tax purposes – which is 27.5% of your salary, with a maximum of R350 000 across all retirement saving platforms you may be using. And, if you have the means to contribute more than this, put additional savings in a tax-free savings account (TFSA).

Crunching the numbers

Taking inflation and market volatility into account today, this is how much you should save in order to retire comfortably. Where you fall in the range depends on your gender and the income solution you plan to use after retirement.

  • If you start saving at 20, you need to save 12 to 17% of your income each month
  • If you start saving at 30, you need to save 20 to 25% of your income each month
  • If you start saving at 40, you need to save 30 to 40% of your income each month

If you want to get R25 000 per month from age 65, this is what you should save every month in Rand terms:

Age Approximate amount* Age Approximate amount*
20 R5 900 20 R6 800
30 R8 900 30 R10 400
40 R14 600 40 R17 000
50 R28 300 50 R33 000

* increasing with inflation

(The above calculations assume inflation of 6%, an investment return of inflation plus 3% after costs and using Sanlam’s Investment Linked Living Annuity (ILLA) income guidelines).

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