Financial Planning

Retirement is about the journey, not the destination

Are you on the right track to retirement?

There is a well-known saying that “life is about the journey, not the destination”. Following my recent article titled How much do you need to retire comfortably many readers have approached me with a follow-up question: “How do I know if I’m on the right track?”

Many of these concerned readers referred to the initial income level of 75% to 80% of their last year’s salary that they should aim to provide for in retirement. This income replacement ratio should be used as a sufficient starting point in calculating how much you need to retire in order to maintain current living standards. The truth is, however, that that figure can be influenced by so many variables, that it can make the calculation of the actual amount you will need, one of the more complicated tasks to tackle.  Although that figure may be your “destination”, determining where you are in the “journey” to retirement, is even more important. After giving it some thought, I reckon you are close to retirement if you have the following six points firmly in place:

1.Debt-free

This is a topic that I have discussed on numerous occasions, especially in my article titled It pays to settle your debt (posted 8 August 2016), where I pointed out the huge difference that paying off a little extra on your outstanding debts can make in the longer term. When you are ready for retirement, you ultimately should like to also be debt-free.

2.Emergency fund

So, now you are debt-free, but what do you do when you suddenly experience a massive financial setback? Unfortunately, the sad fact is that many individuals will return to their old ways and make new debt. To avoid this, it is advisable that you set aside at least 6 months’ worth of net income in a savings account as a safety net for possible unforeseen expenses or life events.

3.Maximum retirement contributions

The current maximum cumulative tax deduction on retirement funds (like a retirement annuity) is 27.5% of your taxable income, or an annual maximum of R350 000. This remains one of the most tax-efficient ways to save for your retirement. If you are in the privileged financial position to already contribute the maximum towards your retirement investments, you are definitely taking a huge step in the right direction towards your retirement destination.

4.Diversified portfolio

Although it is always important to ensure that your portfolio is properly diversified across the different asset classes, it becomes even more important as you get older, simply because your needs and risk profile may change. Be sure to consult your financial adviser at least once a year to determine whether your investment goals are still in line with your risk profile and portfolio composition.

5.Personal net value

I often use the saying, “if you can measure it, you can manage it”. Make list of all your assets and liabilities to “measure” exactly how much you are worth in financial terms. As a rule of thumb, it is recommended that you should have roughly 12 times your annual income saved in assets/investments (some argue this figure should be as high as 17 times, given a low-growth environment). The most important factor, however, is to evaluate this on a regular basis to ensure that this figure is still sufficient.

6.A time-consuming hobby or sport

This will vary from individual to individual, but the fact remains that if this hobby or sport (whether physical or intellectual) starts to take up more and more of your time, you are definitely close to ready for retirement. Just be sure that you have done your homework properly in terms of points 1 to 5 above before you start to “play”.

Remember that the journey to retirement won’t always be an easy one. It will come with its fair share of sacrifices, but the destination will be worth it in the end. Reward yourself along the way with interim rewards like a nice holiday when you’ve reached certain goals. We all have only one journey, so make sure that yours is enjoyable and successful.


The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice. This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for any actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, we suggest that you consult a qualified financial adviser, if needed. 

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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