The 1% that can cost South Africans hundreds of thousands of rands
South African retirees have been warned that fees have a major impact on retirement incomes, with a mere 1% enough to erode a large chunk of their nest egg.
Michael Rossouw, Senior Investment Consultant at 10X Investments, said that South Africans should not rest on their laurels, even if they are among the 6% who have saved enough for retirement.
Rossouw said that while South Africans previously only needed their retirement savings to last around a decade, retirement can now last 20 or even 30 years.
With this in mind, managing silent wealth killers, including fees and tax inefficiencies, is crucial for those looking to retire.
“Regardless of the retirement vehicle, or vehicles, you have, it’s critical to manage costs as
stringently as possible, especially once you start drawing down,” he said.
“A good place to start on this front is to look at the total costs of your retirement investments.” This includes fees paid for investments, management, and advice.
If those fees are higher than what other retirees are paying on a like-for-like basis, one should press for lower fees.
“Even something as small as a one per cent difference can compound over a 25-year retirement,” he said.
“That, in turn, can translate into hundreds of thousands of rands stripped directly from your retirement income stream.”
Once you are confident that you have the costs covered, it’s important to remember that it’s a long game.
Even with time on your hands, it can be incredibly tempting to be more active with your investments. This is especially true during periods of volatility.
However, Rossouw warned that making knee-jerk shifts to your portfolio based on the latest news is a bad idea, no matter when you make the decision.
“Not least because doing so can lock in paper losses permanently. Patience still matters, even when you feel like you don’t have a lot of time left for it,” he said.
This is especially the case given the current global political climate and the return of US President Donald Trump.
Since his return in early 2025, Trump’s administration has implemented widespread tariffs and attacked Iran, causing the global economy to panic.
Understand your products
It is important to understand the types of retirement products on offer, especially living and guaranteed annuities.
A living annuity keeps one’s capital invested in the markets while providing a regular income.
A guaranteed annuity, on the other hand, pays you a fixed amount until you pass away. A hybrid annuity is a blend of the two annuities.
Many see the living annuity as a simple tax-wrapped legal vehicle rather than an investment product in its own right.
It generally allows retirees to meet their statutory income drawdowns of 2.5% to 17.5%, while still growing their wealth.
“The feeling that living annuities are legal vehicles may come from cases where the living annuity underperforms. In those instances, investors often blame the annuity structure itself,” he said.
“In reality, there are usually other culprits at play, including an inappropriate underlying investment portfolio, an aggressive drawdown rate, or high layers of fees.”
Nevertheless, Rossouw said that successful retirement planning isn’t about chasing a high starting yield or finding a “magic bullet” product.
It is instead about being engaged in combining flexible income management, cost control,
and inflation protection.
Loading ...