Saving for the future takes a certain level of maturity.

While many live day-to-day, others view money as something that is there to be spent, lacking the foresight, or concern, on how things will be when that money runs out.

Whatever the case, soon the realisation will hit home that perhaps, just maybe, a little saving effort would have been the best way forward at the end of the day.

Just like everything else in life, it’s never too late to start because no one really wants to be working until the day they die.

So, if you want to retire a millionaire at the ripe age of 65, how much would you need to save every month, depending on your age? Well, Business Tech did some research and they sure got an answer – but not without limitations:

The calculations specifically focus on savings, as it can be an immensely difficult task to calculate RAs and pension plans due to their personalised and complex nature.

The calculations are also not intended to act as financial advice, but rather to illustrate the importance of saving as soon as possible.

The rudimentary calculation is based on the monthly contribution needed to arrive at a capital lump sum of R1 million (in today’s money terms) at age 65.

Key assumptions:

General Inflation: 6%.

Effective capital gains tax (CGT) rate: We used the current effective CGT rate for an individual in the top income tax bracket – 16.4%. Since this is a long-term investment it is assumed that the part of the investment return that would attract income tax (interest and property rental income) would be negligible. So the entire investment return was taxed at the effective CGT rate only.

Investment return: We assumed a long-term investment return of 11% pa – if you deduct the 6% inflation assumption, this comes to a real investment return of 5% pa, which is what one can expect from an investment portfolio with at least 80% or more in equities.

Investment term: We looked at people starting to save at various age brackets from age 25 to age 50, assuming that they continue to pay the required premium until they are age 65.

Regular contribution/premium: We assumed that the investor would be increasing the size of their regular contribution every 12 months in line with the inflation assumption above. This is important, and probably the most realistic assumption, as most people experience a steady inflation increasing salary, enabling them to increase the size of their monthly contribution to the investment annually.

So, what are the numbers? Here’s a handy chart:

But after all that, you might be wondering if R1 million will be enough to retire on? Unfortunately, that’s highly unlikely.

The golden rule of thumb is that saving 12 times your annual salary (15 times if you support your spouse) is likely to buy you a financially comfortable retirement – that is assuming you are debt free by the time you retire.

So, from Business Insider, a handy guide on how much to save in every decade of your life:

If that’s all too much for you to worry about, then you need a financial advisor in your life. Consequence are the best at what they do, offering pertinent financial advice, as well as act as intermediaries across investment and insurance classes.

They’re also an estate planning practice, sorting out your basic will, trust, marriage and business contracts, following with investment and insurance plans, so they really have you sorted.

[source:businesstech&businessinsider]