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Are you avoiding talking about retirement? If you saw how little a million does for you, would this motivate you?

Yes, we’re all in the same boat. Retirement is creeping closer and closer, and you’re already struggling to make ends meet right now. The big question is, “Where are you going to find the extra money to save?”
If you think about it – if you’re struggling now, then how much more will you struggle in retirement? Ask the gentleman below.

Now I don’t want to get caught up in discussing retirement, I simply want to answer a question I get asked all the time.
The question is, “How much do I need to retire on comfortably? R1 million, R3 million, R5 million…?”

So I decided to show you what a million Rand pension would do if you were retiring today.
You’re about to meet three gentlemen on the brink of retirement:

  • Herman who is retiring at 65 only because he’s reached retirement age
  • John who is retiring at 60, and
  • Paul who is calling it quits at 55 because he wants to.

The first thing I usually do when approached by someone about to retire, is shop around for a conventional life annuity. So let me first explain this.

What is a conventional life annuity?

A conventional life annuity is a contract between you and the life insurance company. You hand over your pension fund to them – forever. They, in return, pay you forever.

Once you sign the contract you never get your million Rand back, no matter how much you beg and plead. Die tomorrow, and your million Rand is history (There are options for leaving dependants with income, but this article assumes none of that).
You in return, are guaranteed to receive an income for the rest of your natural life on earth.
Their risk is guaranteeing you that income for life. Your risk is dying earlier than expected and them getting to keep your million.

They can make this promise because they can predict how long you will live based on your current age.

So this is what I told the life insurance company

  • I have a million Rand pension to invest
  • That it must pay a monthly income at the end of each month
  • That whatever that income is, it must increase with 10% every year

So what kind of proposal did they come back with? Let’s find out shall we?

Herman gets to retire at 65 on R3,601 a month

Click on the image below to enlarge the actual quote.

Herman retiring at 65

John retires at 60 on R2,787 per month

Click on the image below to enlarge the actual quote.

John retiring at 60

Paul survives at 55 on R2,373 per month

Click on the image below to enlarge the actual quote.

Paul retiring at 55

What conclusion can we draw from this?

A million Rand pension is nowhere near enough to retire on nowadays. A person with a million Rand is faced with two options:

  • Retire later or
  • Save more

Problem is; what if the option of retiring later isn’t an option?

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