What to do if you are 15 years away from retirement and you haven't saved enough

However, after a few calculations, you realise that although you have successfully provided for your family with private schooling, December holidays at the coast, overseas trips and university, your savings aren’t enough for you and your spouse to keep up your current lifestyle into retirement.

You are not alone

We all want to live independently in retirement and maintain a flexible lifestyle that allows us to travel, shop and eat out. We would never choose to rely on our children for income or a place to live. Unfortunately, the reality is that many people have either put off saving for retirement or weren’t as disciplined as they should have been along the way, and are facing the reality that they won’t be financially independent in retirement.

How much should you save for retirement?

Let’s assume you are a 50-year old male earning R1 million per annum. So far, you have saved R1 million for retirement. While this sounds like a lot, the reality is that if you live for 20 years after retirement, you will need 10 times this amount to maintain your current standard of living.

General financial advice is that you should aim to retire with enough money to provide you with a monthly income equal to 75% of your final salary. To live for 20 years in retirement with a monthly income of 75% of your R1 million salary, you would need a lump sum of approximately R10.6 million in today’s terms.

How much do you need to save?

Let’s assume that you already have R1 million saved, and are currently contributing R10 416 per month to your retirement plan. You want to retire in 15 years. If your current savings and contributions grow at 10% per annum, you will need to save an additional R26 760 per month to have enough income to retire at 65.

You will need to increase your current monthly savings from 13% of your salary to 45% of your salary. A staggering increase.

Most people just aren’t able to do this. So, what are your choices?

Making up a retirement shortfall

1. Work longer

Many of us ideally want to retire no later than the age of 65. But if you haven’t saved enough, and saving 45% of your salary every month isn’t an option, delaying your retirement by five years can help you make up the financial shortfall.

Nowadays, a significant number of people are working beyond the age of 65 to save for retirement, and working longer has its benefits:

• When you retire, you are required by law to buy an annuity with two thirds of your retirement savings. By working longer, you will have more money to purchase an annuity because you have saved more and because you have benefited from an extra five years of compound interest.

• The longer you keep working – that is, keep earning an income, the longer it takes before you rely solely on your retirement savings. You benefit by preserving your retirement savings by not drawing on them immediately.

2. Cut back immediately and substantially

When you have worked for many years, you typically become accustomed to a specific lifestyle. However, if you are faced with the reality that you haven’t saved enough for retirement, it’s time to very seriously address your spending habits and cut down wherever possible.

Take a careful look at where you spend your money. Be mindful of “luxury” expenses like eating out, expensive gifts and travel. Every cent you save now, and over the next 15 years before you retire, is money in your pocket for retirement.

3. Find products and investments that can help you

While you are saving for retirement, it’s important to be smart about choosing investment and retirement products that can boost your savings.

Some retirement products convert unused life cover into cash after retirement, giving you extra retirement funding. Also look for products that reduce costs on your investments. This helps your investments to grow faster instead of paying high fees.

Make your retirement savings work for you

We all look forward to an independent retirement, but retiring comfortably means making certain sacrifices as you go through life. And if you haven’t been disciplined with your retirement savings from the very beginning, you might realise that the money you’ve been putting away all this time towards your pension isn’t going to last. But not all is lost – there are ways to save money wisely and spend your golden years independently. Speak to your financial adviser to find out more.

^{This article should not be taken as financial advice and is meant for information purposes only, for all advice related matters please contact your financial adviser.}

^{Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07.}