How much money you need to retire in South Africa
As a rule of thumb, experts recommend saving for a replacement ratio of 75% of one’s current salary for a comfortable and independent retirement.
Retirement planning in South Africa presents a significant challenge for many, as most individuals lack a clear understanding of how much they need to save to maintain their lifestyle after retirement.
Twanji Kalula from Allan Gray highlights that this lack of awareness is one of the key reasons South Africans often fail to save enough for retirement.
Personal finance experts generally recommend that individuals should aim to replace at least 75% of their final income at retirement to maintain their standard of living.
Achieving this target requires consistent savings of around 12% to 17% of one’s income from the beginning of their career.
Unfortunately, the reality for most South Africans is starkly different. A retirement industry survey revealed that the average retiree in South Africa can only replace 31% of their income after retirement.
Kalula explains that in real terms, this means that after working for decades, most of us will be forced to live on less than a third of our pre-retirement income or face the very real risk of outliving our retirement nest egg.
For instance, someone earning R100,000 per month before retirement would need to save enough to secure R75,000 per month in retirement to maintain a similar lifestyle.
However, if they’ve only saved enough to replace 31% of their income, they would be forced to live on R31,000 per month—significantly less than what they’re accustomed to.
This financial gap is a harsh reality for many South Africans.
The survey also found that only 9% of retirees can replace 80% or more of their income.
This means that the majority of retirees may become financially dependent on loved ones or may need to continue working in some capacity to make ends meet.
Kalula warns that many retirees will inevitably become reliant on the financial support of loved ones or have to find ways to continue generating an income.
Marnus Mostert, a franchise principal and financial adviser, emphasises the importance of starting retirement savings early.
According to Mostert, saving just under 12% of one’s gross monthly salary from the age of 25 can help achieve the 75% replacement ratio by the age of 65.
However, delaying savings until later in life significantly increases the burden.
To meet the same goal, individuals would need to save nearly 21% of their income by the age of 35, and by 45, this figure jumps to an overwhelming 40%.
These scenarios assume a current gross salary of R40,000 and a targeted retirement salary of R30,000 per month (75% of current) that will also increase by CPI (5.5%) until retirement at age 90.
It also assumes an investment growth rate of 10%.
The tables below show how much you need to save in your 20s, 30s, and 40s to retire comfortably in South Africa, as outlined by Mostert.
| Age 25 | Age 35 | |
|---|---|---|
| Retirement age | 65 | 65 |
| Income goal at retirement (today’s value) | R30 000 | R30 000 |
| Investment yield % | 10 | 10 |
| Lump sum at retirement | R48 549 225 | R28 422 201 |
| Monthly savings required (increasing at 5.5% P.A) | R4 741 | R8 182 |
| % of gross salary that needs to be invested | 11.85% | 20.45% |
| Age 45 | Age 55 | |
|---|---|---|
| Retirement age | 65 | 65 |
| Income goal at retirement (today’s value) | R30 000 | R30 000 |
| Investment yield % | 10 | 10 |
| Lump sum at retirement | R16 639 225 | R9 741 111 |
| Monthly savings required (increasing at 5.5% P.A) | R15 672 | R39 470 |
| % of gross salary that needs to be invested | 39.18% | 98.68% |
This advice is particularly relevant considering the country’s poor savings rate.
The 10X Investments Retirement Reality Report 2023 shows that only 6% of South Africans are on track to retire comfortably.
A “comfortable” retirement is defined as having enough savings to replace at least 70% of pre-retirement income.
If the target is 75%, the number of South Africans on track to achieve a comfortable retirement could be even lower.
In addition to personal savings struggles, the national picture is equally concerning.
Deloitte’s South African Investment Management Outlook reported a national savings rate of just 0.5% in 2023, one of the lowest among emerging market peers.
This figure reflects the income saved by households, businesses, and governments as a proportion of the country’s GDP.
A low savings rate limits the potential for future investments, further complicating efforts to secure financial stability for retirees.
The combination of poor savings habits, financial illiteracy, and economic challenges means that most South Africans are at risk of not having enough to retire comfortably.
Starting early and saving consistently are critical steps to closing this gap and ensuring a financially secure retirement.
Read: Tax warning for anyone withdrawing from the two-pot system
Loading ...
