Only 6% of South Africans can retire comfortably

Only 6 in 100 South Africans can maintain their standard of living in retirement, with many people underestimating how much they will need to retire comfortably.

According to asset management giant Ninety One, most investors in South Africa retire without the financial security they had hoped for.

This means many South Africans need to adjust their lifestyle, delay retirement, or rely on loved ones, and sometimes all three.

Concerningly, the asset manager warned that even if someone contributes to a retirement fund, it does not automatically translate into a comfortable retirement.

“For many South Africans, retirement saving either starts late, happens inconsistently, or falls short of what is ultimately needed,” it said.

“The real question is whether what you’re putting away today will be enough to sustain your lifestyle tomorrow.”

A major pitfall for many South African investors is not just saving and investing for retirement, but remaining invested.

When the two-pot retirement system was introduced in 2024, many South Africans rushed to withdraw from their savings.

Withdrawing from retirement savings early not only comes with significant tax implications, with withdrawals taxed at an investor’s marginal tax rate, but can also harm retirement outcomes.

“While the two-pot system allows access to a portion of your retirement savings, frequent withdrawals from the savings pot can significantly reduce your long-term outcomes by limiting the power of compounding,” Ninety One warned.

“Long-term investing allows you to benefit from compounding – where your returns begin to generate returns of their own. The longer you remain invested, the more powerful this effect can become.”

Old Mutual Personal Finance’s Sean van Zyl recently illustrated the impact of withdrawing early from retirement savings.

This illustration showed that the difference between remaining fully invested versus withdrawing the full savings pot annually could see investors lose out on R170,000 when they reach retirement.

“Even relatively small, repeated withdrawals early on can result in a significant loss at retirement. Once that compounding advantage is lost, it cannot be recovered,” Van Zyl warned.

How much is enough

Ninety One pointed out that many retirees will need their savings to last 30 years or more, which makes planning for sustainable income essential.

The general rule of thumb used to determine how much someone needs to save for retirement is the “75% rule”.

This rule states that one should aim to replace around 75% of one’s pre-retirement income. However, Ninety One said reaching this level typically requires consistent saving over time. 

Therefore, starting early and contributing consistently can significantly improve outcomes, whereas lower contribution rates or delayed start dates can make it more difficult to reach retirement goals.

Ninety One said time is one of the most powerful drivers of retirement outcomes.

“The earlier you start, the more time your savings have to compound and the less you may need to contribute each month,” it said. 

The question many investors ask is, “How much is enough?” Ninety One recommended looking at two numbers to answer this question: 5 and 20.

Ninety One sales manager Paul Hutchinson said 5% is a prudent starting annual income drawdown in retirement.

Furthermore, 20 times represents the approximate multiple of your final salary you may need saved to support that income, if you want to retire on 100% of your final salary. For investors following the 75% rule, a multiple of 15 times should suffice.

“You can draw no more than 5% of your retirement capital each year, growing with inflation, in order for it to last for at least 30 years,” Hutchinson said. 

“On that basis, investors may need to accumulate savings of roughly 20 times their final annual salary to target a full income replacement.”

He pointed out that reaching these goals depends not only on how much an investor saves, but also on when they start.

“Starting later often means saving significantly more to reach the same goal. Delaying your savings journey can make reaching your target more challenging – but it’s never too late to act,” he said.

“Even small increases today can have a meaningful impact over time, particularly when combined with a well-structured long-term plan.”

Ninety One illustrated the impact of starting early in the table below, which shows the contribution rates required to reach a target of 20 times your final salary by age 60.

When you start	% of salary needed
Age 20	~15%
Age 30	~30%
Age 40	~60%