How do I calculate what to invest in an annuity at 35, to get around R25m at 65?

There is a user-friendly online tool, and it’s advisable to generate several scenarios based on different assumptions.

My wife recently passed away and there was a substantial death benefit linked to her retirement fund. From what I’ve learned so far, I need to invest the funds in an annuity fund, or pay tax on the lump sum I wish to take.

I’m (only) 35 years old and have two minors to support. I therefore don’t wish to put too much money into an annuity.

The plan is to invest just enough into an annuity to supplement my existing pension fund, in order to retire comfortably one day. The rest I will probably invest in property, so I can substitute the missing income, and still have some growth on my investment.

So my question is this: how can I calculate how much I must invest in an annuity at age 35 to get to roughly R25 million at age 60-65? All the online calculators I’ve found so far don’t take the values that I wish to enter.

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You raise a good question regarding online retirement calculators. When one forecasts a cash flow illustration, several assumptions need to be made. These factors need to be reassessed on a regular basis as the assumptions may need to change.

Many of the online calculators take the following into consideration:

  • Current age;
  • Expected retirement age;
  • Expected retirement period;
  • Current salary;
  • Monthly retirement contributions;
  • Current retirement saving value;
  • The assumed inflation rate over the period;
  • The assumed real return over the period; and
  • Expected replacement value.

The most user-friendly retirement calculator that I have found is the M&G retirement calculator. It allows you to easily adjust the assumption and variables which are shown in a graph.

Note that tax and fees have not been factored into the calculator.

Achieving your target

I assume that your target capital of R25 000 000 is reflected in today’s value of money.

The snapshot below suggests that at an annualised real return of 5%, you would require a lump sum value of R5 800 000 in order to reach your goal in 30 years. This assumes no additional retirement contributions over the next 30 years.

You can play around with the tool to include a lower starting value, monthly contributions and perhaps a slightly higher real return depending on your risk profile. It is advisable to consider generating several scenarios based on different assumptions.

The snapshot below shows you what the tool looks like:

Source: MandG Investments Southern Africa

Note the following:

  • Tax and fees have not been factored into the calculator (no fields are provided for these aspects).
  • If you leave the projected inflation rate at 0%, the figures will be represented in today’s value of money.
  • There is a 5.5% annual escalation to monthly contributions.
  • There is a 5.5% annual escalation to post-retirement income.
  • The default inflation rate is 5.5%.

It’s important for investors to understand the ‘rule book’ when it comes to retirement and drawing a sustainable income. Although you are still in the wealth accumulation phase, I would encourage you to watch Allan Gray’s presentation on How to manage your living annuity in uncertain times. It will give you an appreciation of what needs to be factored in when it comes to retirement.


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