How much do I need to save for retirement?

Key takeaways

  • Don’t assume contributing to an employer-sponsored fund is enough for retirement.
  • Funds target a pension based on your salary, but if you start saving late, you are unlikely to reach the target.
  • An online retirement calculator can give you some indication of what you need to save to achieve the income you need, but a good financial adviser will give you the best estimates and advice on how to achieve your goal.

Many people wrongly assume that just because they are saving in an employer-sponsored retirement fund, or have signed up for a retirement annuity, they will have enough saved when they reach retirement.

It is actually very important that you check that you are on track to save enough by the time you retire. And the younger you are, the easier it will be to set your savings on the right path.

There are a number of factors that influence the pension or income you will enjoy in retirement. These include:

  • The amount you save;
  • The length of time for which you save;
  • The returns you earn before and after retirement;
  • The costs you pay on your savings; and
  • The cost of providing a pension at retirement (buying an annuity or how much you can draw from investments).

The target

When you join an employer and start contributing to a fund, your contributions will be based on a formula worked out by the trustees of the fund. The formula will target a savings amount likely to provide a particular pension.

For the lucky few who are still able to join a defined benefit retirement fund, your employer guarantees that pension, provided you remain employed and contribute for the required number of years. If there is ever a shortfall in the fund, the employer has to top it up. 

If you join a provident fund, most pension funds (those that are defined contribution funds) or a retirement annuity, the contributions and investments are designed to deliver savings at retirement that can provide a pension equal to a certain percentage of your income. This is known as the replacement ratio as it aims to replace a certain ratio of your income. 

A typical formula would be that you (and your employer) need to contribute 15% of your salary to the fund for 40 years to achieve a pension equal to 75% of your income at retirement.

However, if you only start saving at age 30 because you previously withdrew your savings after changing jobs, you only have 35 years until age 65. Unless you save additional amounts, you will not achieve the target of saving enough to provide 75% of your income.

In addition, if the fund’s investments fail to deliver what was expected, you will also not achieve the targeted pension.

Not on track


If your plan is to replace 70% of your income after saving throughout a 40-year working life, you need to have saved:

2 X your annual salary after 10 years

4 X your annual salary after 20 years

7 X your annual salary after 30 years

12 X your annual salary after 40 years




Most members who are not on track to achieve the targeted savings or pension are in that position because they save too little, started saving late or withdrew their retirement savings when changing jobs.

If your savings are not on track, the sooner you address the issue, the easier it will be to resolve, because compounding returns will do some work for you and are more powerful over longer periods.

A good financial adviser can help you work out whether you are on track or you can get an indication of what your savings will provide in retirement yourself using online retirement calculators.

An adviser will use retirement planning software and assumptions to project just how much you will have by the time you get to retirement age, how much income those savings can provide, and how long that income will last in retirement.

Your adviser may even make provision for irregular expenses in retirement, such as replacing your vehicle, a major medical procedure, an overseas trip or home maintenance. Read more: How can I find a good financial adviser? 

Be aware of the assumptions

Some retirement funds also provide you with an estimate of the pension your savings will provide in retirement. This is likely to be based on you using the annuity strategy that the fund’s trustees have identified as suitable for members.

Online calculators rely on the assumptions about returns and inflation that are either chosen for the calculator or input by you. Getting these wrong can make a big difference to the outcome.  

Failing that, for a very rough idea, you can refer to some of the rules of thumb the financial services industry produces from time to time like these:


If you want 75% of your income in retirement you should have around 15 times your final annual salary when you retire.

This means that for a retirement age of 65, you must start saving:

15% of your salary from age 25;

19% of your salary if you start at age 30;

24% of your salary if you start at age 35; and

33% of your salary if you start at age 40.

This is assuming your income grows at a rate of 1% a year above inflation.

Women should probably save more because you are likely to live longer.

Source: Sanlam Benchmark 2017