How to retire at 45 in South Africa

Work, eat, sleep, repeat. Do this until retirement. That’s the way things used to be, but with a new generation comes new ideas, and millennials aren’t waiting for the pot of gold at the end of the retirement rainbow, says Duane Naicker, head of Sygnia Umbrella Retirement Funds.

He highlights a movement called FIRE (Financial Independence, Retire Early) where the goal is to obtain financial independence – a move to escape the rat-race and retire as early as 45.

Naicker explains how to get it done.


FIRE was first introduced in the 1992 best-selling book Your Money or Your Life by Vicki Robin and Joe Dominguez, but gained a millennial following in 2010 after the publication of Early Retirement Extreme by Jacob Lund Fisker.

These financial self-help books provide the basic template of combining simple living with maximising income from investments to achieve financial independence. It’s a simple concept (in theory): leverage savings by finding ways to increase income and/or decrease expenses.

Naicker points out that almost every actuary and financial consultant will encourage you to spend less and save more to retire comfortably. “It’s crucial advice when following the replacement ratio, which tells you what percentage of your last working salary can be replaced with a pension at retirement,” he said.

For example, a replacement ratio of 50% means that the pension you receive at retirement will be around half the value of your last working salary.

“Sadly, this is but a pipedream for most South Africans, with only around 6-8% of the country’s population able to retire comfortably (with a replacement threshold of around 60-70%).

“It gets even more worrying when you consider that life expectancy is increasing and so the vast majority of South Africans will have to rely on friends, family and the state to survive old age – never mind live comfortably and enjoy their retirement,” Naicker said.

If the current system is producing such poor results, why continue doing the same thing and expecting a different result – isn’t this the very definition of madness?

This makes the FIRE concept so appealing to disruption-minded millennials, who, according to American customer experience futurist Blake Morgan, are the generation who “value life experiences and relationships instead of possessions”.

It’s no surprise then that millennials are prepared to sacrifice material possessions and status in order to retire in their mid-40s and live a more meaningful life, as opposed to slogging away for “The Man” their entire lives and retiring at 65, only to eat beans on toast and not live out any of their dreams.

FIRE is achieved through aggressive saving of up to 50% or more of your income – far more than the standard 10%-20% contribution rate.

We all know how hard it is to save 10-20%, so imagine the discipline, resilience and sacrifice it takes to save 50%. But, as the adage goes, “with great sacrifice comes great reward”, so if you’re serious about forgoing frivolities to get the most out of life, here’s what you need to do:


1. Make a retirement roadmap

Identify when you want to retire, then calculate how much you will need to have saved in order to retire early. Work this out by adding up all your current monthly expenses then multiplying that by 300 (adjusting for inflation).


2. Slash expenses

Then sit yourself down and ruthlessly interrogate every expense:

  • Do you need a big, gas-guzzling and/or flashy car?
  • How close to work do you live? Could you move closer and walk or cycle?
  • How big is your living space; surely you don’t need so much room?
  • Rethink lightning fast line speeds and uncapped data bundles at home – how much of Netflix can you really watch?
  • What about that gym membership? Could you not work out via cheaper online programmes, or take up running?
  • Eating out, take-aways, on-the-go coffees part of your routine? Save it for special occasions and learn to cook!
  • New clothes every season? Not anymore… Go second-hand or minimalist.

3. Up your financial savvy

Naicker said you’d be surprised how much you can save by simply educating yourself about finances and making some smart decisions:

  • Budget, budget, budget…and stick to it.
  • Constantly review and analyse your budget – there’s always something you can cut down on.
  • Avoid all forms of debt; short- and long-term. That means no loans and definitely no credit cards, no matter how enticing those rewards programmes may seem.
  • Reduce the cost of investing by considering low-fee index-tracking (passive) investment products or using exchange traded funds (ETFs) to create solutions that match your risk appetite.
  • Use your tax-free savings account (TFSA) limit to maximise your tax-free investments (yearly limit of R33 000).
  • Let your money work for you! I can wax lyrical about compound interest for hours but let’s sum it up by saying: Let your money have money babies (and grandbabies).
  • Get professional advice. Money matters can be intimidating, so don’t be afraid to go to a certified and reputable professional for help.

4. Play it smart

Now that you have less money to blow on unnecessary eating out and parties, you’ll have plenty more time on your hands, said Naicker. Use it wisely:

  • Turn your hobby or side hustle into a new income stream. Think blogging, vlogging, videography.
  • Learn, unlearn and relearn – continually expand your skillset to maximise your growth while you are still formally employed.
  • Grab the freebies; there are hundreds of free – or super cheap – online courses out there.

“Clearly, FIRE is no easy feat, nor is it a get-rich-quick scheme. It requires determination, a lot of sacrifice, self-belief and resilience to achieve. On the flip side, it presents an opportunity to not blindly accept the work-retire-die cycle and to live a more meaningful, fulfilling life,” Naicker said.


How FIRE works

FIRE is achieved through aggressive saving, far more than the standard 10–15% typically recommended by financial planners.

Assuming constant income and expenses, and neglecting investment returns, observe that:

  • At a savings rate of 10%, it takes (1-0.1)/0.1 = 9 years of work to save for 1 year of living expenses.
  • At a savings rate of 25%, it takes (1-0.25)/0.25 = 3 years of work to save for 1 year of living expenses.
  • At a savings rate of 50%, it takes (1-0.5)/0.5 = 1 year of work to save for 1 year of living expenses.
  • At a savings rate of 75%, it takes (1-0.75)/0.75 = 0.33 years of work to save for 1 year of living expenses.

The time to retirement decreases significantly as savings rate is increased. For those pursuing FIRE, the aim is to save 50% or more of your income. At a 75% savings rate, it would take less than 10 years of work to accumulate 25 times the average annual living expenses suggested by ‘the 4% safe withdrawal’ rule.


Alternative view: Why retiring at 45 is (almost) impossible

Sygnia’s head of asset allocation Kyle Hulet has a counter theory.

“I am not a millennial. As a Generation Xer, I quite enjoy a regular monthly pay cheque. But, biases aside, as an actuary who has dedicated a career to understanding retirement parameters, what concerns me about FIRE is that the numbers just do not add up,” Hulet said.

  • As it stands, according to a National Treasury statement only 6% of South Africans can afford to retire comfortably at age 65, let alone at age 45.
  • Saving 20% of gross salary over a 40-year period should allow retirement at, or close to, age 65. Saving 50% of gross salary – a very large chunk of one’s net salary – would allow retirement at around age 50. So retiring at age 45 is almost impossible, unless perhaps you live off beans and water until then.
  • And all this is before tax, which takes a large chunk out of one’s savings returns if not done effectively. Tax-free savings accounts (TFSAs) allow up to R33,000 a year in contributions, while retirement contributions allow up to 27.5% of gross salary. So, if you were to aim to save 50% of salary, your net of tax return assumptions would have to be lower than in my example.
  • Millennials are also likely to live longer than any generation before.

At the extreme, Dr Aubrey de Grey, a biomedical gerontologist (the study of ageing), who is Chief Science Officer of the SENS Research Foundation and Vice President of New Technology Discovery at AgeX Therapeutics, believes that science can extend the lifespan of humankind into hundreds of years.

Whether that’s a sci-fi dream or not, the fact is that most of today’s working population will require an even larger savings pool than current retirement calculations were built for.

These statistics illustrate why I’m so concerned that the FIRE movement is setting up the millennial generation for failure. And not just monetary failure, because Scrooge McDucking every cent to chase a dream life is bound to lead to unhappiness and disappointment for the following reasons:

  • While financial independence is important, life experience is equally so. Living with your parents, forgoing fun and entertainment and eating beans until you reach the age of 45 is a significant sacrifice – especially when the sacrifice is made to achieve a goal that’s most likely not achievable.
  • Delaying your passions until you reach 45 is also unnecessary. South African corporates are highly incentivised to train their employees and are increasingly open to employees working from home or working part time. So you could create a lifestyle where you travel and be a “digital nomad”, have flexibility and pursue your passions – all while working a “day job” and contributing meaningfully to yourself and society.
  • Meaningful careers require a long-term view and offer fantastic growth through sustained learning, not to mention above inflation salary increases. In my view, to focus on a short- term goal like retiring at 45, whatever the personal cost, removes access to those learning opportunities and is therefore short-sighted.

All these cons aside, the concept behind FIRE is sound, because it encourages us to change some serious financial flaws that South Africans, in particular, grapple with. These include frivolous expenditure, living in debt, a culture of not saving enough and starting to save too late.

“I’d like to take these positive elements from FIRE and merge it with what I strongly believe is a much more sustainable and realistic savings strategy for millennials: ICE – Increase contributions effectively,” said Hulet.

“It’s certainly far easier and much less of a sacrifice to do this by educating yourself about Investment and starting your savings journey as soon as possible.”

“Most importantly, save through effective means, such as tax-free or tax-efficient funds and other low-cost products, because high fees are the Pac Man of retirement savings; they will eat away at your profits quicker than the yellow head munches those dots,” he said.

“Unlike the extreme FIRE method, ICE will allow you to save well and enjoy your life. And while saving you can study further, learn new skills and fast track your salary (and your retirement savings) accordingly.”


Read: What it takes to retire early in South Africa

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How to retire at 45 in South Africa