What you need to save in your 20s, 30s, and 40s to retire comfortably in South Africa

 ·13 Jun 2024

Given South Africa’s abysmal savings rate, South Africans must start planning for retirement early if they hope to retire comfortably.

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.

According to the baseline survey on financial literacy in South Africa conducted last year, 46% of adults tend to ‘live for today’ rather than worrying about providing for their future.

Additionally, 44% stated that they have not been actively saving, and one-third (33%) of South Africans have no retirement plan.

Concerningly, the 10X Investments Retirement Reality Report, published earlier this year, shows that little has changed in South Africans’ approach to retirement saving, with many neglecting to do so.

The report tracked and measured the lifestyles of 15.4 million economically active South Africans, revealing that most South Africans have still not formally planned for retirement.

Even among those who have planned, there is a lack of confidence in their preparations for a comfortable retirement.

Roughly half of the respondents with a retirement plan stated that their plans were likely on track, while 29% of individuals over the age of 50 admitted that they were not on track.

What you need to save

A comfortable retirement means different things to different people.

To some, it might mean regular travel; to others, prioritising time with family is their definition of a comfortable retirement.

However, retirees generally define ‘comfortable’ as having enough money to meet all their needs.

These needs include living in an ideal home, enjoying healthy food, and spending time with their family and friends.

The financial resources do more than provide material goods or plane tickets to exotic destinations. It acts as a cushion against uncertainty.

According to Marnus Mostert, a franchise principal and financial adviser, saving to draw 75% of your current salary will ensure a comfortable retirement.

Like many other experts, he stressed that the earlier you start saving, the easier it is to achieve your retirement goals.

To illustrate this, Mostert showed that one would have to save just under 12% of their gross monthly salary to achieve a 75% replacement ratio by age 65.

However, this jumps to almost 21% by age 35 and a whopping 40% by age 45—which will be very hard to achieve for many South Africans.

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 25Age 35
Retirement age6565
Income goal at retirement (today’s value)R30 000R30 000
Investment yield %1010
Lump sum at retirementR48 549 225R28 422 201
Monthly savings required (increasing at 5.5% P.A)R4 741R8 182
% of gross salary that needs to be invested 11.85%20.45%
Age 45Age 55
Retirement age6565
Income goal at retirement (today’s value)R30 000R30 000
Investment yield %1010
Lump sum at retirementR16 639 225R9 741 111
Monthly savings required (increasing at 5.5% P.A)R15 672R39 470
% of gross salary that needs to be invested 39.18%98.68%

Mostert added that one should also consider increasing the premium by 10% per annum instead of 5.5% per annum. This allows you to start at a lower level when you might be earning less at a younger age.

Additionally, he advised that if you invest in retirement vehicles, you will be getting money back from SARS.

Try reinvesting the funds back into the fund; this will increase the investment come retirement and result in more tax being paid back to you—rinse and repeat this cycle, he said.

General rule of thumb

Ninety One provided a rough ‘rule of thumb’ for savings goals regardless of your salary.

If you begin saving for retirement at 20, you would only need to set aside 15% of your pre-tax salary for 40 years to retire with 20 times your salary at the age of 60.

If you start saving at 30, you would need to save 30% of your pre-tax salary every year to retire comfortably at 60.

If you start saving at 40, you would need to save an astounding 60% of your pre-tax salary to retire comfortably at 60.

The following graph shows milestones you need to reach at particular ages, showing you are on the path to a comfortable retirement.

At 25, you should have saved at least one full annual salary. At 40, this should increase to five times your salary. At 50, you should have saved ten times your salary.

Read: How much you need to earn to be in the richest 1% in South Africa

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