South Africa’s retirement time bomb

South Africa is sitting on a retirement time bomb, with only 6% of the country’s population on track to retire comfortably. 

This is according to the recently released 10X Investments Retirement Reality Report 2023, based on the 2023 Brand Atlas Survey findings. 

Brand Atlas tracks and measures the lifestyles of the universe of 15.4 million economically active South Africans. 

This year’s survey shows that there has been little change in South Africans’ approach to retirement saving, with many neglecting to do so. 

The report found that most South Africans have not formally planned for retirement, and those who have planned are not confident that they are on track to retire comfortably.

About half of respondents with a retirement plan indicated that their plans were probably on track, while 29% of people over 50 indicated that they were not on track. 

According to 10X, correcting any deficit in savings after reaching 50 is extremely difficult, and it requires at least 30% to 40% of a monthly salary to be saved to retire comfortably. 

Almost three-quarters of respondents whose plans were not on track said they were simply not able to save enough for retirement.

According to 10X CEO Tobie van Heerden, the survey responses underline the harsh economic realities for most South African consumers. 

“Year after year, we are seeing a large proportion of respondents that have been partially or strongly of the view that they will need to continue earning a living after their formal retirement date.” 

The report also showed that fewer people can retire on their own terms. In the 2021 report, this figure was 70%. This year, it dropped to 60%. 

“This trend reflects the challenging economic times we are living in, indicating a rise in employers compelling their older workers to take early-retirement packages.” 

How much money you need to retire comfortably

It has become increasingly crucial for South Africans to start planning for retirement at a young age, with experts recommending saving twenty times your annual salary to retire comfortably.

Saving for retirement is a long-term financial strategy, and success hinges on generating real returns over time.

Ninety One completed an in-depth study into how investors should approach retirement income provision. 

The study emphasised that choosing the right starting income level is vital to investors managing their risk of running out of money. 

In short, a retiree should elect a starting income level of no more than 5% of their retirement capital. This is the amount they will draw down from their retirement investments. 

With this starting income level of 5% of retirement capital as your standard, you require a capital lump sum equal to 20 times your final salary to invest in an income-producing annuity on retirement. 

This is the amount required to generate an income equal to 100% of your final salary post-retirement. 

Drawing no more than 5% will likely provide you with an inflation-adjusted income for 30 years, ensuring a comfortable retirement. 

Paul Hutchinson from Ninety One explained that any delay in saving for retirement substantially impacts how much you need to save, affecting your current quality of life and how likely you are to achieve your retirement goal. 

For example, if you start saving for retirement at 20 years old, you would only need to save 15% of your pre-tax salary for 40 years to retire with 20 times your salary at 60. 

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

And if you start saving at 40 years of age, you would need to save an incredible 60% of your pre-tax salary to retire comfortably at 60. 

The following graph shows milestones you need to reach at particular ages that show 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.