6 ‘rules of thumb’ to save enough for retirement in South Africa

 ·10 Feb 2024

Having a secure retirement fund is a top priority for many South African families, with experts saying that starting early, having careful planning, and a solid strategy could be the key ingredients to securing a comfortable retirement in unpredictable times.

The 2023 Old Mutual Savings and Investment Survey showed that around 50% of South Africans say that having a comfortable life after the world of work is their primary savings goal.

However, finding ways to balance monthly expenses while saving for the future can seem difficult. Rising costs are seeing South Africans hold down several jobs.

According to the survey, “polyjobbers (those pursuing second revenue streams) make up 50% of the saving and investment market in the country, with more young workers (18 to 29 years old)… at 70% in 2023.”

Experts say that the focus on savings, as difficult as it may prove, stands people in good stead. Sanlam’s Farzana Botha and Sipho Mncwabe have shared some useful “rules of thumb” to consider when thinking about retirement savings:

How much you should be saving

When a person retires, they generally need less income than before retirement. This is because some of the expenses (e.g. travelling to work, potentially no bond repayments, retirement annuity contributions, etc) will fall away. Also, a person will pay less tax after 65 (and even less after 75).

The exact amount a person needs to save has to be calculated by taking into account individual circumstances, including how much a person has already saved, their desired retirement age and how much income they would need at retirement.

Depending on a person’s retirement plans, a person would typically need at least 60% of their final pre-tax salary after retirement. 

Tools such as a retirement annuity and future value calculator can be used to assist.

Start saving now

“People in their 20s may feel like they don’t have enough to put away during the early stages of their career, but they should not underestimate the value of saving small amounts,” said Farzana Botha. She said that starting early “gives compound interest time to work its magic… which makes a world of difference.”

While starting sooner rather than later is seen as ideal, the experts emphasise that even if retirement savings have been left late, there is no time like now.

“It has been said that the best time to plant a tree is 20 years ago, and the second best time is today… the same holds for retirement savings… every month you lose is a month you will never get back,” said Mncwabe.

However, Mncwabe said the implications of not saving or starting late are stark.

“If you want to replace 75% of your last income at age 65 and you start saving at age 25, you would need to save 15% of your income; If you only start saving at 35, you will need to save 24% of your income; Delay until you are 50, and you will need to save a whopping 60% of your income.”

Preserve the savings

The experts have stressed that people should resist cashing in retirement savings prematurely, with the “message becom[ing] even more important” given the upcoming two-pot retirement system.

“The new legislation aims to empower more South Africans to preserve their retirement savings when they leave a job or change employment while enabling controlled access to these savings in times of financial hardship,” said Botha.

With this easier access, the experts say that keeping the preservation of savings on the top of your mind is key.

Put away as much as you can rather than nothing at all

Mncwabe said that if the full amount required to reach your retirement goals cannot be saved, it is better to put away as much as possible rather than nothing at all.

“While we may not see or appreciate the impact of the small amounts, over many years, they make a difference because of compounding interest. So we should never underestimate the power of small beginnings,” he said.

Do not rely solely on someone else

The experts suggest that the safest bet is to rely on yourself, even if smaller in scale, as circumstances can always change. As trustworthy as a source may be, investing your own capital provides a better safety net.

Mncwabe said that people must not rely solely on “an inheritance from your parents, your spouse or your children; While they may eventually contribute, there is no guarantee of this, and it’s best to have a plan in place.”

Accounting software firm Countingup says that the money that you invest carries weight.

“If it’s your money, you are attached to it, so you might manage it better than if you get it from somewhere else.”

Ensure retirement savings make provision for post-retirement healthcare

Botha said that this is a crucial factor that is often overlooked when considering retirement.

If forgotten, healthcare expenses can exorbitantly bleed into hard-worked-for retirement funds.

Read: South Africa’s shocking retirement figures

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