Retirement calculator – a real eye opener

By Neil Vorster | 2 Property Investment Planning

Retirement calculator

Retirement calculators abound.

Attempted saving for retirement is a gory and unsatisfying story played out on a stage by millions of South Africans every year.

Effective retirement planning is seen as so difficult that many people simply ignore the inevitable reality, hiding their heads in the sand and hoping for the best.

Unfortunately, as always, the old adage applies; If you aim at nothing, you will hit it every time!

For those that want to take action, almost every insurance house has an online retirement calculator. Unfortunately, I believe they are generally designed to cause confusion, and no small amount of panic, so that you will give up your self-help quest and call one of their salesmen.

If you are serious about planning for your retirement, you have no doubt gone down this road before. They all offer slightly different products that make different forecasting assumptions.

In an attempt to find some answers, I have completed the exercise with a few insurers. And these are my startling findings;

For a 30 year old, earning R 30 000 per month, and hoping to retire at age 65 on a pension similar to his current earnings and will require an income until age 95. (One assumes you have to timed it right and not shuffle off this mortal coil before or after that age.)

The general consensus is that one will be required to invest around R6000 per month increasing by 8% per year for the next 35 years!

Every retirement calculator requires different guesses from you as to the expected stock market performance and inflation rates. Some educated guesses the insurance companies offer (with disclaimers, of course);

Projected inflation rate in South Africa is 5% for the next 35 years …what?

Growth of the stock market will be 8% per annum for the next 70 years … again, what?

Since saving R6000 per month, increasing by 8% per year for 35 years is often simply beyond reach, what does one do?

 The solution

A simple alternative can be had by augmenting whatever retirement plans you have with a few buy to rent townhouses.

The buy to rent formula can be simplified like this:

You buy a townhouse with the bank’s money. Get a series of tenants to pay the bank back over 10 to 15 years, and you get to own the property.

The next question is, how many do I need to own ?

Here’s a simple but effective formula.

You could be financially free today on R 25 000 per month if you were out of debt and your children were living independently.

Using Paul’s pearl of wisdom, (explained here) the average Northgate townhouse dwellers are earning R 25 000 – R 30 000 per month, and spending 25% of their income on rental, namely about R6 500 per month. By buying 4 townhouses in Northgate, you can assure yourself an income consistent with the average Northgate townhouse dweller once your bonds are paid off. The beauty of this method is that it is inflation resistant.

As your rentals increase each year, you can increase your monthly bond repayments, thus reducing your loan down to 10 or 15 years.

Over time the 25% formula might change a little, but the principle won’t. To build in a safety factor, why not aim at 6 townhouses?

You wouldn’t have to buy all 6 townhouses now, start with one and aim at buying at least one additional property every year for the next 5 years.

At Organic Growth we will show you how to do this simply and effectively, while offering a solution that will take all the hassle out of property management.

To find out more click here

 

Image courtesy of [Stuart Miles] / FreeDigitalPhotos.net

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About the Author

Neil Vorster is a property investment coach, investment author and co-founder of Organic Growth. Aerobatics pilot and cycling nut.