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How to Retire in South Africa With Enough Money to Keep You Happy

Elderly couple walking happily on the beach during their retirement years without financial worries

Have you thought about how much money you need to happily retire in South Africa? 

In this article we will attempt to assist you in setting attainable financial expectations and share insightful tips on how to confidently prepare for retirement in South Africa. Let’s get started! 


The reality of retirement planning in South Africa

According to the 2021 Brand Atlas Survey, a survey that tracks the lifestyle of economically active South Africans in households earning more than R8 000 per month, a shocking 71% of respondents have no retirement savings plan at all!

Why is this the case? Many respondents stated that they are unable to put a retirement plan in action because at the end of the month they have absolutely nothing to contribute towards it. Moreover, many stated that they hope to continue working after retirement age and rely on available social grants or the kindness of family and friends willing to financially support them. 

To make matters worse, the majority of South African households are over-indebted, which means that retirement is even further out of reach. Setting up a plan to start saving for retirement, and tackling your debt is key to set yourself up for life after you stop working.

After all, we want to retire comfortably, and provide for our children and families rather than be dependent on them for mere survival. Now that we know what we’re working towards, let’s find out how much you might need to retire in South Africa.


What to consider before setting your retirement goal 

Before you begin setting the goals for your retirement, ask yourself the following three questions: 


What kind of lifestyle do you want to lead when you retire? 

You may want to continue living at the same standard you currently are, but make sure to factor in other aspirations you might want to achieve in your retirement, for example, are you planning on downsizing to a smaller home, moving to the coast or taking a long-awaited vacation to celebrate your retirement?  

Your retirement lifestyle choice will influence how much retirement savings you’ll need and what kind of budget you’ll be setting for yourself once you are retired.


How much income do you need when you retire? 

If some expenses will vanish, you will most likely need less than 100% of your current income to live comfortably. Assess exactly what expenses will fall away, which ones will remain and what additional expenses may be incurred or increased over time. 

And try to include provisions for unexpected events. It is better to be prepared than caught off guard.

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What is your income replacement ratio?

Your income replacement ratio is determined from your current income and your income when in retirement (often represented as a percentage). The income replacement ratio is simply the difference between the two figures.

Calculating this ratio will assist you in determining how much money you need monthly to survive when retired. Oftentimes, your expenses will decrease and your retirement income will be slightly less than your monthly income before retirement. 


Let’s talk money: how much do you actually need to comfortably retire

There are several methods you can adopt when saving for your retirement. Here are four different approaches: 


The 80% rule

With the 80% rule, you will need at least 80% of your current monthly income to spend in retirement. For example, if you currently earn R15 000 per month, you will need R12 000 per month in retirement to maintain your expected standard of living. 


The 4% rule

The 4% rule states that if retirees withdraw 4% of their savings annually (keeping inflation in mind) their savings will last for at least 30 years – enough to cover your entire retirement phase. Note that this rule requires the savings to be equally split between shares and bonds. 

Here is an example: If you retire with a final annual salary of R480 000, you need a replacement ratio of 90% which amounts to R432 000. This means you would need R10.8 million saved in order to withdraw 4% (R432 000) annually when in retirement.   


The 75% replacement ratio rule

This rule is perhaps one of the most popular ways to save for your retirement. Simply explained, you need to save enough to reach a 75% replacement ratio. Generally, experts place the necessary contribution amount at 17% of your salary over 40 years. 

Essentially you’ll aim to have enough retirement savings to allow you to reach a retirement “income” (interest earnings and payouts of your retirement savings) that is equivalent to 75% of your earnings before retirement. For example, R750 for every R1,000 earned before retirement.


The 15% rule

Another benchmark rule for retirement saving is the 15% rule, which is the act of saving 15% (or 17% if you can afford it) of your monthly salary for the entirety of your working career (which should be no less than 40 years).  


The best time to plan for your retirement is now

Planning for your retirement is probably one of the most important financial decisions you will have to make in your lifetime. 

We hope that so far this article has given you a thorough introduction to how much money you need to save for your retirement in South Africa, as well as what kind of goals you need to be setting beforehand.

Now let’s talk age.

Next, we’ll take a look at the different ages at which you can retire, the pros and cons of each age range, as well as how to fully prepare for your retirement. 


At what age should you retire?

In South Africa, you can legally retire at any age. However, depending on your needs, health, savings, and financial circumstances, it is pivotal to take your age into consideration when prepping for your retired life. 


Early retirement: before the age of 65

If your retirement nest egg allows for early retirement, you may rejoice in the opportunity to leave your job and retire earlier than the average age of 65. Many choose early retirement in order to bank on their good health and start a new hobby, spend quality time with family or even travel. 

However, an extended retirement timeline may place pressure on your retirement savings if the extra amount of time without a salary has not been taken into account. If you decide to retire earlier than expected, make sure your investment saving plans are adjusted accordingly, or that you still have sufficient income to support the additional years of retirement.


Normal retirement: ages 66 – 70

This age group is considered to be the average age of retirement. When it comes to retirement savings, time is your friend, and oftentimes your retirement reserve has this age range in mind when meeting a specific retirement savings goal. 


Late retirement: 70 and older

If your health and circumstances enable you to continue working, there is no harm in continuing to boost your portfolio and retire when you feel ready. 

Looking beyond the financial benefits, many potential retirees choose to continue working out of a passion for what they do. However, the stark reality of a lack of retirement planning in South Africa indicates that many have no choice but to work beyond the average retirement age due to financial burdens and saving constraints. 

The sooner you can make plans to start saving for your retirement, the better. 


How to prepare for your retirement 

Map out your retirement 

First and foremost, you need to plan your retirement with the full picture in mind (if your retirement is getting closer, try and step up your game with short-term financial goals). From timelines to taxes, your retirement planning will influence your future lifestyle and quality of life. 

Give the following points a thought: 


Calculate your time horizon 

When do you think you will retire? Although there is no way to predict the future, be realistic with your potential retirement age as this will determine how much time you have to save and invest appropriately. 

As soon as you have a figure, for example, a 25 to 30-year timeline, you can construct a portfolio that will best suit your financial expectations and requirements. Your retirement plans will have to assess and manage inflation, interest, as well as the risks associated with your chosen investments. 


Determine how much money you need to retire 

When beginning your retirement planning, take into consideration your current (and future) spending habits, day-to-day lifestyle requirements and goals. 

You may want to splash some extra cash celebrating your retirement by travelling or moving into a new home, but be realistic with your monthly expenses, potential purchases and aspirations. 

As we mentioned earlier, there are several methods you can use to help calculate how much you will need to retire in South Africa. From the ‘80% rule’ to the ‘15% rule’, make sure to choose one that fits both your ability and your needs.  


Calculate the after-tax rate of your projected investment returns 

After you have calculated your retirement investment horizon and potential expenses, it is essential that you calculate the after-tax rate of your returns.

What exactly does this mean? You can withdraw a lump sum from your retirement portfolio but it will be subjected to income tax by the South African Revenue Service (SARS). Depending on the amount, tax rates can amount to 36% in South Africa. 

It is imperative that you consider this calculation in your retirement saving plans and portfolio construction.

Assess your strategy: goals vs. risks 

Aforementioned, your retirement portfolio will need to predict potential risks as well as balance them with your retirement financial goals. 

Entering economic turbulence early in your retirement can have a dramatic effect on how long your retirement savings will last. Do your best to account for unexpected national or global events that could impact the market, and consequently, your retirement. Managing risk is essential for a happy retirement.

Working alongside a financial professional to manage these potential risks, continuously assess your retirement goals and adjust your portfolio where necessary can be very beneficial.  


Start planning now to happily retire in South Africa 

Planning for your retirement is probably one of the most important financial decisions you will have to make in your lifetime. 

From understanding how exactly to calculate your retirement savings, to determine the best age to retire, we hope this article has given you a thorough introduction to how much money you need to retire comfortably in South Africa, as well as what kind of goals you need to be setting beforehand.

If debt is holding you back from meeting your retirement savings goals, consider reaching out so that we may help you to get out of debt. So that you can focus on your financial future.

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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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