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Formula - how much you need to stop working for money, forever

6 April 2021 11:48 AM

How much do you need so you can live off your investments? Certified Financial Planner Paul Roelofse shares a few formulas.

Click here for all our personal finance articles in one place.


If you are very confident about your financial situation, you’re probably not going to wear an eight-pound chain around your neck… If you’re confident about your sexuality, you don’t have to have eight women around you twerking!

Barack Obama, former President - United States of America

How much do you need to retire?

How much do you need so you can live off your investments?

It can be much earlier than the customary retirement age of 65, says Certified Financial Planner Paul Roelofse.

For many people, however, it will be much later.

Guidelines for how much you need to be financially free:

© deagreez/123rf.com

The 15% "rule"

It is a good starting point to invest 15% of your income each month.

If you start at age 20, earning R15 000, your 15% savings is R2250 per month.

Keep it up until you are 60 (40 years) and you should amass about R12.5 million.

If you start at 30, investing the same about will get you to R4.6 million while starting at 40 will leave you with R1.6 million when you are 60.

The most important factor is time.

Formula

Divide your annual income requirement at retirement by 0.05.

If you need R15 000 multiply this by 12 and then divide by 0.05 which amounts to R3.6 million.

Multiple of your monthly income need

Another shorthand way to an amount is to take your monthly salary times 240.

If you earn R15 000 per month, then multiply by 240 which amounts to R3.6 million.

Capitalisation

Financial planners calculate the amount required by “capitalising” the income need.

Taking inflation, returns and time; a monthly income need of R15000 for a 15-year period amounts to R3 470 695.

Kieno Kammies interviewed Certified Financial Planner Paul Roelofse.


Click here for all articles by Certified Financial Planner Warren Ingram in one place.


I think 65 [as retirement age] is outdated… We’re living longer… 75 is the new 65…

Paul Roelofse, Certified Financial Planner

… 15% may not be enough, depending on how long you’ve saved… You can now go up to 27.5% [allowed tax deduction] …

Paul Roelofse, Certified Financial Planner

The definition of financial freedom is where your investments yield enough to maintain your lifestyle for the rest of your life – a tall order… The lower your lifestyle, the fewer provisions you need…

Paul Roelofse, Certified Financial Planner

It’s not out of reach… constant saving over time…

Paul Roelofse, Certified Financial Planner

For more detail, listen to the interview in the audio below.




6 April 2021 11:48 AM

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