Finance Minister Pravin Gordhan that a key constraint of the South African economy is the low levels of savings and also hinted that the Treasury would be taking measures to boost confidence in savings mechanisms in months ahead.

According to Jason Garner of acsis, in light of National Savings Month in July, consumers should reassess their savings habits, as well their financial plans regularly, in order to ensure that what they are putting away is in fact enough in the current economic environment.

He explains that if not regularly reviewed, financial plans can potentially become irrelevant, which in turn could result in financial failure, especially in the current financial climate. “According to research conducted by acsis, the financial security of pre-retired individuals with a financial planner and an updated financial plan in place is significantly higher than those without a financial planner. This is a  clear finding that an evolving financial plan and the use of an expert in these matters significantly empowers people and contributes to their financial well-being.”

Garner explains that  if an individual at age 25 develops the habit of saving 10% to 15% of everything he or she earns before retirement, they will give themselves the best chance of being part of the 6% of SA’s population that currently retire comfortably. “This means that they will retire on more or less the same income they were earning before retirement.”

When it comes to how much to save for retirement, the table below provides a rough guideline, based on certain assumptions: (salary is R120 000pa, no other investments, return on savings is 10%, 85% of salary needed at retirement at age 65, expected to live to 90, earnings compounded & assumed net of fees, inflation at 6% & pension escalates accordingly.)

He says that the harsh reality is that if an individual does not save in line with these assumptions, they will more than likely not be able to live the lifestyle they are accustomed to in retirement.

25 year olds need to save 10-15% of salary to retire at 65
35 year olds need to save 20-25% of salary to retire at 65
45 year olds need to save 40-45% of salary to retire at 65

Garner says that in order to review a financial plan, the individual firstly needs to determine his or her current financial situation. “This will include understanding what type of lifestyle is currently led, how money is being spent and what savings contributions are being made. After this has been evaluated, short and long-term goals need to be determined. This can include retirement plans, children’s education and purchasing a home. Once these goals have been identified, the actions that will assist in achieving these goals can be better determined.

“After all of the financial challenges consumers have had to battle through recently, the idea of saving money doesn’t feel very realistic. However, by making a couple of adjustments to a financial plan, saving might not be as tough as originally expected,” concludes Garner.

Follow Women24 on Twitter.