Retire: Minimised living expenses = maximised retirement

Carina JoosteLatest, Retire

The really nice thing about saving for a long-term goal, like a comfortable retirement, is that it requires us to do lots of little and doable things repeatedly over a period of time. For example, a daily jog and healthy diet can reduce our chances of costly lifestyle diseases in our old age. Choosing a low-cost financial services provider can add many zeros to your savings pot, while compound interest is very forgiving of smaller monthly contributions in the long run.

Cost of living

Another doable change is to review our living expenses. If we can reduce our monthly cost of living, we can add another layer of comfort to our golden years. Think about it: When you reduce your living expenses you will have more money to save (or to pay-off debt), and you will also need less to fund your retirement.

Track your expenses

Any conversation about money requires honesty and a decent helping of reality. So, here’s the challenge: Are certain living expenses really worth your hard-earned cash every month? For example, if you’re in the habit of regularly upgrading your car to the latest model, your living expenses will be higher than necessary. If you live in a house much bigger than you actually need, property tax and general maintenance will add a significant chunk to your cost of living. And if you take those types of expenses with you to retirement, then you will need more cash in your savings pot to fund them during your retirement.

The proof is in the numbers

A few calculations will show you how reducing your current expenses can take you closer to achieving your retirement goals. The good news is that you don’t have to be an excel maestro, because we have the internet to do the heavy lifting.

  • First you need to calculate your current monthly expenses as they are.
  • Subtract the expenses you won’t be paying during retirement – your savings for retirement, school fees, bond repayments, etc.
  • Multiply this number by 12 to calculate your annual living expenses. Once you have that number, use this inflation calculator to include inflation in your estimate.

For example: 

  • Monthly living expenses: R10,000
  • Annual living expenses: R120,000
  • Annual living expenses in 30 year’s time (with inflation rate of 5%): R518,633

Now multiply your annual living expenses (with inflation) with the number of years you will spend in retirement.

Great! So now you know how much you need in order to retire with your current living expenses.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.

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