A Guide to Saving Smart for Retirement in Your 50s

Saving for retirement is a journey that spans your entire working life, and the importance of each variable that drives your likelihood of success changes to some extent as you age. As you enter your 50s, the priority becomes planning for retirement and potentially delaying retirement. In this article, we will again utilize our pre- and post-retirement tool based on The Big Picture from Investments Illustrated to delve into whether and in what ways the seven key variables can set you up for success in your 50s.

What matters most in your 50s?

When you reach your 50s, the key variables to focus on are asset allocation and the age at which you plan to retire. A common perception of the 50+ age group is the need to derisk your investments by reducing your exposure to equity and property to prepare for retirement. However, at 50 you still have at least 10 years to save for retirement and even when you retire, assuming that you plan to keep your retirement savings invested, your investment horizon is still an additional 20 – 30 years. In other words, multi-asset high equity, with approximately 75% invested in equity and property, is still appropriate. In addition, at 50, you are also close enough to the traditional retirement age of 60 or 63, that you can start putting career plans in place that will allow you to earn an income beyond this traditional retirement age.

Let’s use Sam, aged 50, who is currently earning R1.75mil per year, has R 12 mil saved up already and is aiming for R 21 mil (in today’s terms) of retirement savings when he retires at 60. This will give him a 60% replacement ratio. He is currently invested in a multi-asset low equity solution.

One of the key levers for Sam to consider is changing his asset allocation from a low equity to high equity solution as this will increase his likelihood of success from 30% to 59% - practically double the success rate. Thereafter, extending his retirement age and assuming Sam maintains his current savings habits can take his success rate up to nearly 100%.

These results show that both retirement age and asset allocation are powerful levers to pull, but the trick is that both levers need to be pulled to some extent. Should Sam stay in a multi-asset low equity solution, working until the age of 70 instead of 60 will only take his likelihood of success to 62%. He will still be well below the ‘above 80% sweet spot’. But, increasing his asset allocation to multi-asset high equity and working just 5 years longer will get him to 80%.

These results also show that irrespective of what you are invested in, the first three years of still contributing to and not drawing from your retirement savings are the most impactful. Thus the combination of remaining invested in a multiasset high equity solution and working until 63 or 65, is the no-brainer lever as you enter your 50s.

So, what matters most?

Each life stage presents distinct opportunities to enhance your retirement savings strategy. At all ages, it’s worthwhile to bank the easy wins by optimizing asset allocation and reviewing total charges. This combined with diligence in adjusting contributions ensures a robust retirement plan. To succeed in saving for retirement, make sure you set regular ‘pit stops’ for yourself to adjust your strategy throughout your working life.