{"id":815,"date":"2021-10-13T06:38:53","date_gmt":"2021-10-13T06:38:53","guid":{"rendered":"https:\/\/www.innov8fs.co.za\/blog\/?p=815"},"modified":"2026-03-18T11:46:44","modified_gmt":"2026-03-18T11:46:44","slug":"how-much-money-you-need-to-retire-comfortably-in-south-africa-according-to-experts","status":"publish","type":"post","link":"https:\/\/www.innov8fs.co.za\/blog\/2021\/10\/13\/how-much-money-you-need-to-retire-comfortably-in-south-africa-according-to-experts\/","title":{"rendered":"How much money you need to retire comfortably in South Africa, according to experts"},"content":{"rendered":"

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The 2021 edition of the 10X Retirement Reality Report points to a deteriorating pension outlook for South Africans.<\/p>\n

In the wake of the Covid-19 pandemic, even fewer now look forward to a comfortable retirement, says Chris Eddy, head of investments at 10X Investments. This is evident across all age groups, demographics and income levels.<\/p>\n

The 10X report is based on the annual Brand Atlas Survey, which tracks the lifestyles of the 15 million economically active South Africans in households earning more than R8,000 per month.
\nAlarmingly, this modest cut-off already excludes two-thirds of households in the country.<\/p>\n

In total, 71% of respondents indicated they had no retirement savings plan at all, or just a vague idea of one. That is a lot of people who could be forced to rely on the kindness of family
\nand friends, or to live off South Africa\u2019s meagre older person\u2019s grant (state pension) of R1,890 per month (R1,910 for those older than 75), said Eddy.<\/p>\n

Within the \u2018fortunate\u2019 minority, half the respondents still don\u2019t save because they have nothing left at the end of the month. And even among those who are saving, just 7% anticipate a comfortable retirement; 79% fear they won\u2019t have enough or feel unsure.<\/p>\n

Most survey respondents (74%) believe they will have to generate some income after they retire. Another 19% are not very sure, leaving just 7% of respondents feeling confident that they are on course for what is increasingly becoming an outdated notion of retirement, based on full financial independence.<\/p>\n

Breaking this down into different income groups: a mere 6% of those with a household income of R50,000 and above feel sure they will not have to keep earning after they retire. For both other income groups, it was just 7%.<\/p>\n

This highlights once more that achieving a financially secure retirement is less about how much we earn, and more about how much we engage in the process, inform ourselves and save.<\/p>\n

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But how much is enough, and how do we start a savings plan to get there?\u00a0<\/strong>Several leading financial services firms weigh-in:<\/p>\n

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The 80% rule<\/strong><\/p>\n

Schalk Louw, portfolio manager at PSG Wealth, notes that many experts recommend using the 80% rule as a benchmark for what you will need to cover your monthly expenses once retired.<\/p>\n

\u201cI won\u2019t personally guarantee the accuracy of this figure, but it does give us a basis to start from,\u201d said Louw.<\/p>\n

If you currently earn R15,000 per month, and apply the 80% rule, you will need at least R12,000 per month after retirement to maintain your current living standard.<\/p>\n

Unlike food products, human beings don\u2019t have a \u201cuse by\u201d date, so we have to rely on a safe withdrawal rate to ensure that we do not outlive our savings, said Louw.<\/p>\n

According to this rate, you should be able to withdraw 5% of your portfolio yearly without having to use any of your remaining capital, he said.<\/p>\n

\u201cThis approach is based on the fact that the historical return on the South African stock market (since 1964) was about 8% higher than the local inflation rate and that you would expect to earn slightly less than that in a typical balanced fund portfolio.<\/p>\n

\u201cBy limiting your withdrawals to 5% of your portfolio, you should still have an additional 5% to 6% growth to cover inflation in the long run.\u201d<\/p>\n

Based on a 5% annual withdrawal rate after retirement, Louw said that the amount you will need to save in rand terms would look something like this:<\/p>\n

R12,000 x 12 months = R144,000 (annual income) \u00f7 0.05 (5% safe withdrawal rate) = R2,880,000.<\/p><\/blockquote>\n

If you don\u2019t properly compensate for inflation in your portfolio, you may fall short of your required total after retirement, said Louw.<\/p>\n

\u201cLet\u2019s assume that you are 40 years old and you plan to retire at age 65 (25 years). By using the top of the South African Reserve Bank\u2019s target range, the best-calculated guess we can offer on annual inflation is around 6%.<\/p>\n

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The 4% rule<\/p>\n

Traditionally, financial advisers, savers and retirees have relied on the 4% rule when working out how much to save for retirement and what kind of annual income retirement savings would provide, noted financial services group Discovery.<\/p>\n

Simply put, the rule says that if retirees withdraw 4% of their savings annually (adjusting this amount for inflation every year thereafter), their nest egg will last at least 30 years. The rule also requires retirement savings to be split equally between shares and bonds.<\/p>\n

This method, Discovery said, is also used to determine the lump sum investors need to provide an acceptable annual income when they retire.<\/p>\n

For example, if you retire with a final salary of R480,000 a year, you need a replacement ratio of 90% of your final salary, which amounts to\u00a0R432,000<\/strong>. To ensure you do not use all your saved retirement capital in 30 years, R432,000 should be 4% of your total savings, Discovery said.<\/p>\n

This means you would need R10.8 million saved to draw 4% or R432,000 annually. Put another way:<\/p>\n