Wednesday, 22 May 2013

How much retirement planning should one plan for?

It's funny how, when growing up, a person feels invincible. Think about it. You hardly ever get sick. You visit the doctor two to three times a year; and maybe only taking antibiotics twice a year. "Sick?? I don't get sick." Many folks in their 60's and 70's whom I know  also used to say that. Something happened when they hit 45 though. Things like kidney problems, gall stones, back issues and caterax started to plague them. 

It's funny how when growing up, we live for the here and now. We don't give much thought to when we hit 50 or 60 or even 90. We're 30, we're peaking and we have lots to live for. We hardly give any thought to pension plans or retirement annuities. We hardly ever think about how we're going to live when we can't earn a salary any more do we? 

The thing is much time should we spend thinking about our retirement? How much money should we be putting aside now for that stage of our lives? I mean, how long are we talking about? 10 years? 20 years? 40 years? Some people live till they're 90 you know! How much financial planning should we be putting in? And also, are we willing to sacrifice our "living" now for a time when we can't do much "living" when we're older anyway? What happens if we sacrifice financially now and then we die when we hit 60? We could have done so much more "living"when we were alive and able. How much is too little? How much is too much?

I think a balanced approach would be wise. Having a pension plan or an RA now in place; and probably a house. At least when a person hits 60, they don't have to pay a bond or rent any more. And for normal households, that's around 30% of their monthly income. Making sure they have a medical aid would be crucial. A really good one as well. But how much does that cost? And more importantly, how much WILL it cost? Medical aids aren't cheap you know; and you DO NOT want to land up in a South African government hospital (ask anyone who's been to one). 

And living expenses in 30 years time is another story:
Did you know that a 2lt Coke was R4.99 in 1996. In 17 years the cost has tripled. Think about this with me...if that's the case, then simple maths tells us that in the year 2030, the cost of a 2lt Coke will be around R45.00. If you're 40 years old now, 2030 will be a mere 2 years into your 'retirement'. 
Did you know that the cost of fuel (petrol unleaded) was R7.08 p/litre in May 2008. It's now R12.10 a mere 5 years later. To fill up my car in 2008 cost just over R400. It now costs just over R700. It's only 5 years later. Imagine the cost of fuel in 2040????

The scary thing is that today I see many older folk who struggle - they have had to cut their medical aids, they live barely making ends meet and they some are living in old age homes because they have no homes for whatever reason. The only really well off older folks are the ones who were quite rich when they were able to work, and so had the money to set aside for their retirement. 

I'd love to hear your thoughts on this. I'm 32. And I have 336 months to go till I reach 60. That's 336 more months to put aside some savings for when I stop earning a salary at all. Am I doing enough. How you doing?

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