If you were 65 – and retiring today – what sort of income could I guarantee for 5 million Rand?
When talking retirement, by far the most popular question we get asked is’ “What sort of income will I get for (Put your own amount here) million?”
In our previous article – What income will a million pension will buy you – we looked at the lives of three guys about to retire:
- Herman who was retiring at 65,
- John who was calling it quits at 60, and
- Paul who felt very confident about retiring at 55
Now what these three gentlemen didn’t know, was that they were the beneficiaries of unclaimed pension fund benefits. Talk about a lucky break – these three guys were suddenly 4 million richer than they thought!
Each of them asked us to prepare quotes on the same basis as before, but with 5 million Rand instead of 1 million Rand. Now if you can remember that article; they each wanted a conventional annuity with:
- no guarantees
- no second life assured, and
- a 10% increase in the income every year to keep up with inflation
- payable monthly in arrears (at the end of the month as opposed to the beginning of the month – just like your salary)
Here’s how things panned out for each of them with R5 million…
Herman who retired at 65:
Herman walks away with R18, 682 a month in salary.
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I haven’t taken tax into consideration when doing this, okay? You need to remember that a “pension” is taxed just like your salary is right now. The only difference is that someone aged 65 gets what’s known as a secondary tax rebate. Once Herman turns 75 he qualifies for an additional tertiary tax rebate.
Looking through my skeptics lens; it’s clear to see that SARS doesn’t expect many of us to ever make use of those rebates!
John who retired at 60:
John takes home R15, 087 a month.
Click on image below to enlarge:
And what about Paul who retires at 55:
Paul scrapes by on R12, 457 a month.
Click on the image below to enlarge:
Let’s sum it up:
5 Million Rand is a lot of money in most people’s books – especially if you work for a boss!
Even if we take Herman as our example – R18 grand a month isn’t much to write home about. Paul has even less to be enthusiastic about.
Three things we need to consider:
- We need to start thinking of postponing retirement.
- We need to look at alternative careers once we officially “retire”.
- We need to own assets which generate passive ongoing income
In our next retirement article I think we’ll take a look at what you’d need as a “pension” if you were retiring today.
I mean think about it…
- if you had absolutely no debt
- If all you needed was to pay rates and taxes, medical aid, and food
What sort of monthly income would you need to live comfortably for the rest of your life?
Are you curious about what your pension or provident fund will pay out?
Why not take our poll below and let us know which pension fund amounts you’d like me to prepare quotes on. I’ll then use the most popular amounts for a future article.
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Until next time
The InsuranceFundi Team
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