For a couple of days now, I have been telling you how you can easily do your own financial calculations.  And when you start calculating, it becomes very scary.  Now let me share the scariest fact of all:

If you retire today, with the assumption that inflation = investment return, and that your income will increase by the inflation rate for 20 years, that is 240 months, what happens in month 241?

You will have no money left.  Let me repeat that:  you will have no money left.

Assumptions:

Required initial income is R10 000 per month for 20 years.  Income and capital grows by 6% per annum (inflation = investment growth rate).  That means that I need R10 000 X 12 X 20 = R2 400 000 in capital

Look at the table below.  After 20 years (in the Table Year 19) I run out of capital!  So what are you going to do in month 241?

Understand the Table.  At the beginning of year 1 I take out R120 000 for my first 12 months income.  I invest the balance.  Beginning of year 2, I take out what I need and invest the balance.  And I carry on like that.  In year 19, I only have available exactly what I need for the year.  Do I hear somebody say:  “I will earn interest on the money for the year.”  I hope you do, but the effect is negligible.

How many people do you know or know of, who, a couple of years ago took a severance package, or who retired and are now working again, because they obviously have to?  In all probability, this is the reason.

Or as the Financial Mail article said:  “The luckier retirees live off alternatives such as rental income, or their children. Others don’t even have those resources.” Read it here.  So there is the answer and the solution!  You have a choice:  invest in property or have children!