Tips for safeguarding your retirement in South Africa

The foundation of a secure retirement in South Africa lies in saving early and regularly. However, many residents face considerable difficulties in preparing for retirement due to the challenges of managing their finances in a stagnant economy.

Ultimately, the goal is you should be able to replace 75% of your current salary to ensure a comfortable retirement. No mean feat for South Africans whose national savings rate was just 0.5% in 2023 – one of the lowest among emerging countries. But even if you’re late to the savings party, there’s no reason to be despondent because you can always close the gap.

Unfortunately, the reality of retirement in South Africa is very different to the ideal. A recent survey revealed that the average retiree in South Africa can replace only 30% of their income after retirement, less than half the recommended 75%. Even so, to achieve the 75% replacement threshold requires consistent saving of roughly 15% of your income from the very beginning of your career, reports Business Tech.

RETIREMENT IN SOUTH AFRICA

But what does this percentage of replacement income mean in practical terms and how can it be achieved? Basically, like the average retirement in South Africa, if you’re only able to save 30% of your annual salary – you’ve got to be able to survive on 30% of your salary in your retirement years. Just let that sink in for a bit. Likewise, the 75% threshold means you’ll have three-quarters of your usual finances to live off when you’re retired.

In practical terms, someone earning R10 000 per month before retirement, will need to save R7 500 per month for retirement in South Africa to maintain a comparable lifestyle. And even factoring in the harsh reality of this big financial gap in South Africa, how can anyone realistically survive off just R2 500 per month in their prime of life? So, how do you ensure you don’t outlive your retirement nest egg and become financially dependent on loved ones or the SASSA grant system in your latter years?

START SAVING WITHOUT DELAY

Experts say it’s all about saving as much as you can from as early as you can. By putting away 12% of your gross monthly salary from the age of 25, you can help achieve the 75% replacement ratio by the retirement age of 65. If you’re starting later, you need to save more than 20% of your income at age 35. Moreover, if you’re particularly late and you’re 45, this figure jumps to 40%. These figures also assume a basic retirement annuity investment growth rate of 10%.

*data courtesy of Allan Gray