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How to calculate your living standard

Why this is important for retirement planning – Part 2.

JOHANNESBURG – In an article published on Moneyweb recently, a retirement educator argued that it was just as important to examine your living standard on your way to retirement as growing your capital and saving.

Dave Crawford, CFP® and founder of Planning Retirement said a firm grasp of your current living standard is essential when trying to determine whether you are on track to retire comfortably – in other words, if you would be able to maintain your standard of living in retirement. This can be done by calculating your present retirement income and expressing it as a percentage of your current living standard.

“This is a fairly accurate measure of the adequacy of the subject’s retirement provision at the date of the calculation.”

Determining your living standard

Crawford says your living standard is essentially what is left of your total monthly earnings (salary, bonus, allowances and other taxable income) after all the amounts that you don’t or can’t spend (taxes, contributions to savings and mortgage payments) are deducted.

The example below sets out the living standard calculation of a husband and wife by taking into account all income and subtracting contributions to pension funds and retirement annuities, taxes and savings contributions. Keep in mind that the example will have to be adapted to suit your personal circumstances. In this case, the employer’s contribution to the member’s medical aid was added to the basic living standard amount, as the assumption was that she would have to fund this herself after retiring.

As shown below, this couple needs R45 301 per month (in 2016 Rand) to fund their current lifestyle.




Annual salary

R300 000

R400 000

Annual bonus

R25 000


Annual car allowance

R72 000


Any other taxable income

R12 000


Total (A)

R409 000

R400 000

Annual pension and retirement annuity contributions (B)

R22 500

R30 000

Deduct (B) from (A) to get net taxable income (C)

R386 500

R370 000




Tax on net taxable income (D)

R77 801

R72 686

Deduct (D) from (C) tax to get after tax income (E)

R308 699

R297 314




Annual savings and mortgage payments



Annual endowment policy premiums

R3 600

R2 800

Annual contributions to unit trusts, ETFs etc.

R12 000

R6 000

Any other savings

R2 000


Annual mortgage payments

R60 000


Total (F)

R77 600

R8 800

Deduct (F) from (E) to get basic living standard (G)

R231 099


R288 514

Annual tax-free income



Current annual employee medical aid subsidy

R24 000


Total non-taxed income (H)

R24 000


Add (G) and (H) to get full annual living standard amount

R255 099

R288 514

Add member and spouse annual living standards

R543 613


Divide by 12 to get monthly living standard (I)

R45 301


Source: Planning Retirement

The next step is to calculate what retirement income the couple would receive from all their pension fund assets and other savings if they had to retire today. In their case, the assumption is that a 5% drawdown would be sustainable, although it may be prudent to use a figure of 4% or less, depending on circumstances.

Retirement Income estimate calculation

Retirement fund present value

R2 000 000

R3 300 000

Retirement annuity fund value



Endowment policy surrender (cash) value

R75 000

R56 000

Unit trust (ETF) value

R260 000

R72 000


Share portfolio value

R85 000


Cash value

R120 000


Any other asset that could be used to produce income



Total value of financial assets (J)

R2 540 000

R3 428 000

Add member and spouse’s amounts together (K)

R5 968 000


Multiply (K) by 5% to get retirement income estimate

R298 400


Less Income Tax (Income split in half tax added together)

R27 198


After-tax equivalent retirement income per year

R271 202


After-tax equivalent retirement income per month

R22 600





After-tax current living standard

R45 301





Equivalent retirement income as % of current living standard (R22 600/R45 301 x 100/1)



Source: Planning Retirement

The model suggests that if the couple had to retire today, they would only have about half the money necessary to maintain their current living standard.

At the moment the wife is 50 years old and the example assumes that the couple will work until she turns 65. This means they still have more than a decade to remedy their situation.

The table below sets out the targets (their retirement income as a percentage of their living standard) the couple would have to reach each year to fully fund their living standard by the time they reach retirement – in other words reach a position where the equivalent retirement income is a 100% of their living standard. Individual circumstances may differ considerably from the above example and you may want to increase or reduce your targeted goal and adopt the model accordingly.

“People who save very little will have a relatively higher living standard than those who save more but will have a bigger gap to make up for retirement. If this living standard figure is recalculated every year the goal (100% or more or less as selected) will always be expressed in present value and should thus always be understood.”

For this couple, a compound interest calculation suggests that their target has to grow by (a real) 4.74% each year to accomplish that. This is the annual percentage by which the capital growth must exceed the rate at which the individual’s living standard increases, Crawford says.





















































Practically this means that if they don’t make any adjustments (save more or reduce their living standard), the real return needed on their current investments is 4.74% per annum.

If their annual inflation rate is an assumed 6% and fees amount to 2%, they would require a return of 12.74% each year to get to their target by age 65, which is probably a stretch if one considers the current investment climate.

If the required real rate of return is higher than about 4.5% this is a signal to consider saving more. You could also review your investment strategy (especially asset allocation), work longer and/or retire on less, Crawford says.

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Very interesting and informative article! I always find it amazing that when such articles appear we have little or no commenting coming through.Perhaps it shows that the content thereof is way above the intellectual capacity of most Moneyweb readers.


This is an outstanding article and should hopefully provide a massive wake-up to those who think that they can survive comfortably on R15 000 to R20 000 per month.

Throw in the cost of replacements and repairs on an ongoing basis and you will go white with fear if you do not make huge and immediate changes to savings and lifestyle.

Well done Moneyweb for enhancing the retirement debate.


Hopefully this will provide a massive wake-up for those who think they can live comfortably on R15000 to R20000 per month.

Well done Moneyweb for enhancing the retiremenbt debate.

“Perhaps it shows that the content thereof is way above the intellectual capacity of most Moneyweb readers.”

Ha Ha, Very funny (and offensive I must add)
On the contrary, if you are a regular on this site, such as myself and many others who’ve been coming here for ages, you’ll know precisely the droves of comments, debates, arguments etc. these articles have attracted over the years.

The problem that all finance publications have is that there is a very limited variety of topics to write on, particularly where retirement is concerned, so unfortunately what happens is that, after years of reading, you eventually reach the ‘I’ve heard it all before’ point, whereby every article just seems like a re-hash of the last…

So Bruce, it’s not that we’re stupid, but rather, it’s simply impossible to maintain constant levels of enthusiasm for something you know already, though we are reading and keeping abreast.

If you’re new to the site, welcome.

pathetic articles such as this one does not deserve anything other than “JUNKED”

Excellent. Unfortunately the “Want it now ” lot will ignore this

well I am lost for words just cannot believe that in this age and where we are in the investment cycle – such dribble can be written AND published – apparently with the agreement of a “certified” financial planner. firstly sa has one of the highest – if not the highest unemployment rates in the world. it has minimal growth – there are no capital inflows (going out now), the currency dropped 26% last year and already 10% down in 2 weeks of 2016 – and the writer’s solution to a shortfall -SAVE MORE! in what and for what purpose? world markets taking a hammering – no more so than sa- talk of 2 decades to recover. then of course inflation is about to rear its head. then of course how is one going to find employment with these fancy salaries? there needs to be a discussion – not on how much one needs to save (which is pointless in sa) – but on HOW TO SURVIVE IN A FAILED STATE. the country is about to be downgraded to junk status – capital outflows will be stopped – this is the reality that should be discussed not printing eye popping figures which are meaningless

robert, robert, you need to calm down lad.
There have been many crises of this magnitude before – and there will be countless more in the future.

I remember feeling like you do now.
The day after PW Botha’s “Rubicon” speech in August 1985 comes to mind.
And when the dotcom bubble burst, when my employer at the time’s share price went from $97 to $0.45 in one nightmarish dive – a 99,5% loss, or a “only 1 in 215 remaining of your capital”- situation.
The world survived. We survived. We still do.

One does not stop saving in circumstances like the above, one saves more. Perhaps one changes the asset allocation, or makes the decision to never buy (say) an old Land Rover or an Alfa Romeo again, but one keeps saving. Because things will get better again, sooner or later. And you need savings to be able to participate in the upswing when and where it eventually happens. There is no rational alternative.

good points raised. not sure whether you are sa or off shore based – my remarks are aimed at sa’s grasping at straws to attempt to maintain their wealth. you are absolutely correct abt the “world” will continue but it will be different to the one we have known or invested in for past 20 or so years. just as the tech bubble was a turning point for hi tech – so this commodity bust will have far reaching impact for decades to come – esp on emerging markets and countries like Australia and Canada who have relied on their commodity earnings to cover up the mistakes they have made. this is why RBS put out this article (I myself got out the market over a year ago)-

Robert, please oh please butt out of our business in SA?? We all know you need to justify why you left SA!?? Now please mind you own business and worry about Australian issues. You must be so home-sick by adding your irrelevant comments on SA web-sites!?? It’s enough now!?? Surely there are enough Australian web-sites that can keep you occupied!??

why? this is a website open to everyone – and MAYBE I will go away if someone answered my questions!

Thank you great article.
In retirement ideally you want to live off the income of your investments.
if you do the calc and see that income is not going to be enough, you will need to save more, reduce your standard of living or both before you retire.

I would just like to know what if you are earning less than R25 000.00 per month and already after working out your percentage and it is 84% at age 53 are you saving enough or would it be wise to put an additional amount on you pension. Can you ever save enough. And what is enough.
Each individuals needs are different.

In a country like Sa the key to surviving is an off shore income stream. I myself am on the uk pension which is only 110 pounds per month would amount to R125,000 per year. That’s a good start. To this add off shore products which over time will bring you about the R250,000pa needed to live comfortably. These products will automatically be adjusted for inflation by the rand depreciating. Any Sa pension entitlements shad be ignored -esp if you are a public servant as the gov’t will have cleaned those out a long time ago. This is what I mean by “surviving retirement in a failed state”

Excellent article!
This simple spread sheet exercise if done on an annual basis will definitely highlight any issues in retirement funding.
The problem is that most people, myself included, do not really know if they are on track or not, this is a very simple way to measure one’s progress towards a comfortable retirement.

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