{"id":788292,"date":"2024-08-27T18:00:00","date_gmt":"2024-08-27T16:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=788292"},"modified":"2024-08-27T16:21:47","modified_gmt":"2024-08-27T14:21:47","slug":"how-much-money-you-need-to-retire-in-south-africa-2","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/788292\/how-much-money-you-need-to-retire-in-south-africa-2\/","title":{"rendered":"How much money you need to retire in South Africa"},"content":{"rendered":"\n

As a rule of thumb, experts recommend saving for a replacement ratio of 75% of one\u2019s current salary for a comfortable and independent retirement. <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

Twanji Kalula from Allan Gray highlights<\/a> that this lack of awareness is one of the key reasons South Africans often fail to save enough for retirement.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

Achieving this target requires consistent savings of around 12% to 17% of one’s income from the beginning of their career. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

However, if they’ve only saved enough to replace 31% of their income, they would be forced to live on R31,000 per month\u2014significantly less than what they’re accustomed to.<\/p>\n\n\n\n

This financial gap is a harsh reality for many South Africans. <\/p>\n\n\n\n

The survey also found that only 9% of retirees can replace 80% or more of their income. <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Marnus Mostert, a franchise principal and financial adviser, emphasises the importance of starting retirement savings early. <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

However, delaying savings until later in life significantly increases the burden. <\/p>\n\n\n\n

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%. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

It also assumes an investment growth rate of 10%.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

<\/th>Age 25<\/th>Age 35<\/th><\/tr><\/thead>
Retirement age<\/td>65<\/td>65<\/td><\/tr>
Income goal at retirement (today\u2019s value)<\/td>R30 000<\/td>R30 000<\/td><\/tr>
Investment yield %<\/td>10<\/td>10<\/td><\/tr>
Lump sum at retirement<\/td>R48 549 225<\/td>R28 422 201<\/td><\/tr>
Monthly savings required (increasing at 5.5% P.A)<\/td>R4 741<\/td>R8 182<\/td><\/tr>
% of gross salary that needs to be invested<\/td>11.85%<\/strong><\/td>20.45%<\/strong><\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n\n\n\n
<\/th>Age 45<\/th>Age 55<\/th><\/tr><\/thead>
Retirement age<\/td>65<\/td>65<\/td><\/tr>
Income goal at retirement (today\u2019s value)<\/td>R30 000<\/td>R30 000<\/td><\/tr>
Investment yield %<\/td>10<\/td>10<\/td><\/tr>
Lump sum at retirement<\/td>R16 639 225<\/td>R9 741 111<\/td><\/tr>
Monthly savings required (increasing at 5.5% P.A)<\/td>R15 672<\/td>R39 470<\/td><\/tr>
% of gross salary that needs to be invested<\/td>39.18%<\/strong><\/td>98.68%<\/strong><\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n\n\n\n

This advice is particularly relevant considering the country\u2019s poor savings rate. <\/p>\n\n\n\n

The 10X Investments Retirement Reality Report 2023 shows that only 6% of South Africans are on track to retire comfortably. <\/p>\n\n\n\n

A “comfortable” retirement is defined as having enough savings to replace at least 70% of pre-retirement income. <\/p>\n\n\n\n

If the target is 75%, the number of South Africans on track to achieve a comfortable retirement could be even lower.<\/p>\n\n\n\n

In addition to personal savings struggles, the national picture is equally concerning. <\/p>\n\n\n\n

Deloitte\u2019s South African Investment Management Outlook reported a national savings rate of just 0.5% in 2023, one of the lowest among emerging market peers. <\/p>\n\n\n\n

This figure reflects the income saved by households, businesses, and governments as a proportion of the country’s GDP. <\/p>\n\n\n\n

A low savings rate limits the potential for future investments, further complicating efforts to secure financial stability for retirees.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

Starting early and saving consistently are critical steps to closing this gap and ensuring a financially secure retirement.<\/p>\n\n\n\n

\n\n\n\n

Read: Tax warning for anyone withdrawing from the two-pot system<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

This is the amount of money you should aim to save to retire comfortably in South Africa.<\/p>\n","protected":false},"author":92,"featured_media":788313,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[853],"class_list":["post-788292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-south-africa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/788292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=788292"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/788292\/revisions"}],"predecessor-version":[{"id":788504,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/788292\/revisions\/788504"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/788313"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=788292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=788292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=788292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}