How much money you need to retire comfortably in South Africa
The retirement landscape in South Africa is rapidly changing. People are living longer than expected, so they must save more to retire comfortably.
Legislative changes, in the form of the new two-pot system, also affect how much one needs to save, particularly if they withdraw from their savings ‘pot’ before retirement.
The new retirement system aims to improve outcomes for South Africans, with the country having one of the lowest household savings rates in the world.
For example, FNB’s latest Retirement Insights Survey revealed that almost 50% of all respondents do not even have a retirement plan.
This has severe consequences in retirement, with 89% of South Africans planning to work at least part-time after retirement as they lack enough savings to retire comfortably.
Nearly half of those say they will have to sell assets and rely on family and social grants to maintain their lifestyle during retirement.
A survey from Allan Gray revealed that the average South African retiree can replace only 31% of their income with their retirement savings.
The survey data also revealed that only 9% of retirees manage to replace 80% or more of their pre-retirement income.
This problem is set to get worse as South Africans live for longer than they expect, and the cost of living continues to rise.
Discovery Invest CEO Kenny Rabson explained that this means they have to save more than initially planned to be able to retire comfortably.
Rabson gave the example of an investor aiming for a replacement ratio – the income needed to maintain their lifestyle in retirement – of 75% of their pre-retirement income by 65.
If an individual lives five years longer than expected, their replacement ratio will fall below 50%, creating a serious challenge to maintaining their lifestyle in retirement.
The obvious solution is to save more during your working career, but this has the potential to negatively impact your quality of life before retirement.
Rabson said the only way to avoid this problem is to start saving earlier, which enables you to put relatively less of your monthly income away for retirement while being able to maintain your lifestyle later on.
Based on the same example above, if an individual starts saving at the age of 20, that individual would need to put away about 13% of their income each month.
Delaying that to 30, the ratio climbs to a much more demanding 22% of their income. By 40, it becomes practically impossible to achieve the desired outcome, as the required contributions become impractically high, Rabson said.

As a rule of thumb, South Africans must replace at least 75% of their final income at retirement age to retire comfortably.
South Africa’s largest private asset manager, Ninety One, has conducted an in-depth study into how much one needs to save to retire comfortably.
As a starting point, Ninety One said 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 investments after their working career.
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.
Ninety One explained that starting to save early is vital for South Africans as any delay impacts how much you need to save in the present, impacting your current quality of life.
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.
This is shown in the graph below, which outlines the respective share of your salary you need to save and for how long you must save to retire at 60 with 20 times your final salary.

Ninety One explained that it is essential to understand your progress toward achieving your lump sum retirement goal, as retirement planning is a lifelong journey that spans your entire working career.
Equally important is the ability to reassess your retirement strategy, adjusting both your savings rate and investment approach as needed.
As retirement draws nearer, it’s typically wise to focus on reducing risk and preserving your accumulated capital.
Certain investment principles, like diversification, remain just as critical in the pre-retirement phase as they are during retirement.
Diversification can safeguard your investments against market downturns while enabling you to shift from a growth-oriented approach to one centred on generating income.
The chart below highlights key savings milestones to aim for at different stages of life, indicating whether you’re on track for a secure retirement.
By age 25, you should ideally have saved the equivalent of one year’s salary. By age 40, this should grow to five times your annual income and, by age 50, to ten times your salary.
This guideline may not apply universally. For instance, someone planning to retire at age 70 may require less than 20 times their income, as they would have worked additional years and would need to draw on their savings for a shorter period.
Crucially, people working today are likely to live longer than they expect, and, as Rabson pointed out, they will have to save more than they planned for retirement.

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