A reader has asked me to comment on his retirement provision, says Pieter Willem Moolman.

He is due to retire in about three years’ time and will then have contributed for about 10 years to a provident fund. His accumulated capital will amount to approximately R110 000 and he wants to know what his options are.

The first important aspect to keep in mind is that the growth of your provident fund (or any other investment) is not only related to the time over which you have invested, but also the amount contributed.

The combination of reasonably sized, regular contributions over a number of years is what is going to assist you in achieving your retirement capital goal. Therefore, investing merely R100 per month for 30 years is not going to be as effective as, say, investing R1 000 per month for even just 10 years.

The question is how much is enough? Your goal will be affected by various factors.

The first question to think about is at what age you wish to retire. The earlier you stop working, the more capital you will need to sustain your lifestyle – and don’t forget that life expectancy has increased significantly as our general living conditions have improved.

Next you must consider how much income you will require in retirement. While certain expenses may decrease, more provision may have to be made for, say, entertainment, travelling and medical expenses as you grow older.

Aim to pay off any debt before you retire so that you do not have to use your valuable savings to pay vehicle financing and bonds after retirement.

As a rule of thumb, you will require R1 million’s worth of capital for every R5 000 of income required per month.

This is based on a life expectancy of approximately 20 years and will also mean that you deplete your capital. Should you wish to preserve your capital, the required amount will increase.

Our reader mentions that he has three years until he retires. If he cannot extend this date within his current employment, it may mean that he will have to look for alternative employment to allow him to carry on earning an income with which to supplement his retirement capital.

As we all are aware though, finding employment is not always easy for older people, emphasising the importance of saving while you are still young enough to work gainfully.

It may be unavoidable for our reader to change his lifestyle drastically to boost his retirement savings by as much as he possibly can in the next few years. Even then, it is doubtful that he will ever be able to retire financially independent.

For those readers who are younger and still have more time to provide for their retirement, keep in mind the words of the investment guru, Warren Buffet: “Don’t save what is left after spending. Spend what is left after saving”.

Pieter Willem Moolman is the owner of PWM Financial Management in Port Elizabeth. Visit www.pwmfb.co.za or phone 041 582 3034.