The Crawford Measure has been created by Dave Crawford, a financial educator. It is a simple spreadsheet that helps to calculate whether or not your retirement savings are adequate. It starts with your current living standard and then compares that with the amount you have saved already for retirement. This calculation is in the form of an adequacy ratio and the goal is to have 100% by the time you retire.

Each year you are able to calculate where you are in terms of that final goal. For example by the age of 30 you should have an adequacy ratio of 12.4% and by the time you are 45 you should have a 38% adequacy ratio.

As life changes continuously – salary increases, changes lifestyle and retrenchments – you need to update this figure every year. If you are falling behind the curve it is an indication that you need to be saving more.

How it works:

It starts with calculating your living standard. This is how much you need to live on. So it does not include your tax, retirement savings and mortgage (if you are on track to be debt free in retirement).

So you take your total earnings and deduct tax, savings and mortgage payments.  What is left is what you live on, and that is the targeted standard of living. For example if your monthly income is R30 000 and once you have deducted tax, savings and your mortgage you are left with R9500 – this is your standard of living.

You then calculate your total savings to date. Take the value in your pension fund, unit trusts, endowments, retirement annuities etc. Take this total figure and divide by 20. This gives you the annual income you could generate off this amount in today’s value based on a real return of 5% (after inflation). You then divide this amount by 12 to calculate a monthly retirement income. This gives you an idea of how adequate your retirement provision is in current buying power.

For example

Total investment value: R600 000/ 20 = R30 000

Monthly retirement income: R30 000/12 = R2 500

How adequate?

You then need to compare this amount to your living standard:

(Monthly retirement income/monthly living standard) X 100/1 = adequacy ratio

In this example that would be:

(2500/9500) x 100/1 = 26.32%

Whether or not this is enough all depends on your current age. If you are 35, you are on track with your current level of savings but you need to recalculate each year to make sure you stay on the right path. A higher income leads to higher standard of living so you need to ensure you have increased your savings in line with your salary. By the same token a significant market correction or a drawdown due to retrenchment can have a negative impact on your investments which may require you to increase savings.

If you are however 45 years old, this ratio is not enough to secure your retirement. You need to increase your savings.

You can create this worksheet as a log book and update the figures each year. This will help you focus on your retirement strategy and give you the willpower to save those additional windfalls like bonuses and also prevent you from dipping into your investments.