Generation X - born between 1965 and 1979 (40 to 54 years old) - is set to start retiring relatively soon. Amid the hype about millennials and Gen Z, X-ers don’t make headlines all that often, but they should. A guinea pig group for defined-contribution (DC) funds and the so-called sandwich generation, X-ers were the least optimistic about having enough retirement savings in the Sanlam Benchmark Survey.

Here’s what they - and other generations - need to be saving, based on meaningful multiples.

Karen Wentzel, the head of annuities at Sanlam Employee Benefits, says there’s a simple formula that can show every generation whether it’s on track to retire with enough.

“The goal is to have more than 15 times your final salary saved at retirement. That number 15 is based on the assumption that you retire at 65 and how much you need to save to buy an annuity to replace your salary. We base the figures on the assumption you save 15 percent of your annual salary a year, get investment returns of 10 percent a year, receive a salary increase of 6.5 percent a year, and that in a partnership both members contribute to retirement.”

Based on these assumptions, Table 1 shows the number of years worked and the multiple of your current salary you should have saved.

It also depends on what age at which you start saving. Compound interest means the earlier, the better.

Table 2 shows what percentage of your salary you need to save, based on the age at which you start saving.

What this means for Gen X

Based on the above, a typical Gen X-er aged 45 who started saving at age 25 and earns R500 000, with an expected final salary of R1.7 million at age 65 should have the equivalent of R2.65m saved by now.

The fact that the Sanlam Benchmark survey suggests most X-ers feel far from ready to retire with enough stems from myriad factors such as family responsibilities, the rising cost of children’s education, high living costs, expensive medical fees, and, perhaps, DC funds (where an employer and an employee add fixed contributions to a fund. Note, the contributions are specified, but the retirement benefit is not guaranteed.) There’s also longevity risk - the increasing risk of outlasting one’s savings.

What if you’ve done the maths and can see that you’re not on track?

“It’s not too late. DC funds carry a few risks, namely that earnings can fluctuate according to market returns. Speak to a financial adviser and consider which savings product could help saving more monthly. Also, it’s vital to preserve your savings if you’re changing jobs. Accessing your money early has long-term implications,” says Wentzel.

“Depending on when you started saving, you may need to up your monthly retirement contributions each month and reshuffle your budget in order to do so.

“It’s also an idea to start thinking about a savvy side hustle to start now and continue into retirement. Stopping working at age 65 is a very outdated idea. Continuing work could help to supplement your income, especially if you’re only going to be able to start to seriously save after your current family responsibilities have diminished.

“A final tip would be to dodge lifestyle creep and save more instead. As we earn more, there’s inevitably the temptation to spend more. X-ers especially are known for ‘Keeping up with the Jones’. Try to avoid this and rather focus on paying off debt - a home loan, especially. Once you’ve paid off debt, you can ramp up your savings.”

A word for millennials and Gen Z-ers

The youngest millennial (Gen Y) is 23, the oldest is 38. The youngest Gen Z-er is only 4. The oldest is 22. That’s quite a difference in age and life-stage. Let’s take an example of a 32-year-old who started working at age 22. If she earns R300 000, as someone who has been working for 10 years, she should have saved R690 000.

What if you’ve done the maths and can see that you’re not on track?

Wentzel says time’s still on your side, particularly for the youngest millennials - and definitely for the Z-ers. Age 25 is considered the “golden” age to start saving, but if you start earlier than that, it’s even better. Even saving tiny amounts, such as R250 a month, make a difference, due to the magic of compound interest.

Wentzel says it’s best to seek professional advice.

“An adviser can help you to manage your money to maximise savings. They can also point you in the direction of the right combination of products that suit your desire for flexibility and choice. As a young person, you can afford to invest more aggressively, as time is on your side.” 


PERSONAL FINANCE