It is a depressing reality in South Africa that most people can only afford to retire comfortably at age 80 – if at all. In our latest Money Bootcamp episode, we unpack these figures and consider whether retirement at age 65 is even possible in today’s economic climate.

The mathematics of retirement

The financial calculations behind retirement planning illustrate why it is such a challenge.

Consider someone earning R50 000 per month who wants to maintain their lifestyle in retirement. Using the widely accepted 75% replacement ratio, they would need approximately R11 million in today’s money to fund their retirement adequately.

This figure becomes even more daunting when viewed through the lens of the 4% withdrawal rule – a conservative approach that suggests retirees can safely withdraw 4% of their retirement capital annually.

For someone needing R600 000 per year in retirement income, this translates to requiring R15 million in investments.

The Sanlam corporate retirement survey found that the average South African reaching age 65 has accumulated savings that provide only 25% of their current income – far below the recommended 75% replacement ratio.

This massive shortfall explains why many people struggle to retire at the traditional retirement age.

Starting too late, saving too little

One of the most significant barriers to adequate retirement savings is the failure to start early enough and save consistently. A strategic approach to retirement contributions, based on age, could look something like this:

• 20s: Save 10% of income
• 30s: Increase to 15% of income
• 40s and 50s: Ramp up to 30% if you’ve fallen behind

The power of compound interest means that delaying retirement savings has exponential consequences. Investments typically double in value every seven years, with consistent growth, making early contributions far more valuable than larger contributions made later in life.

Common retirement planning mistakes

Several critical errors consistently undermine retirement planning efforts:

Cashing out early: One of the most devastating mistakes is withdrawing retirement savings when changing jobs to settle debts. This decision eliminates years of compound growth and can set retirement planning back by decades. The two-pot retirement system was introduced by government to try and address this common mistake.

Underestimating longevity: Many people plan for retirement based on outdated life expectancy figures. With medical advances extending lifespans, planning for living into your 90s is becoming increasingly prudent.

Over-reliance on single income sources: Depending solely on a workplace retirement fund, especially when contributing the minimum required amounts of 7.5% to 10%, rarely provides sufficient retirement income.

Retiring with debt: Entering retirement while still servicing debt, particularly a home loan, significantly reduces available retirement income and creates unnecessary financial stress.

Strategic approaches to improve retirement readiness

There are several practical strategies that can improve retirement outcomes.

The delay strategy: Postponing retirement by even five years can dramatically improve retirement security. Working from age 65 to 70 allows investments to compound further while reducing the number of years requiring retirement income. This dual benefit can transform an inadequate retirement fund into a sustainable one.

Tax-efficient investment vehicles: Maximising contributions to retirement annuities provides immediate tax benefits while building long-term wealth. Complementing this with tax-free savings accounts creates a pool of money that can be withdrawn tax-free during retirement.

Multiple income streams: Diversifying retirement income beyond traditional retirement funds is crucial. This might include property investments, consulting opportunities, or other discretionary investments that can provide ongoing income.

The save more tomorrow approach: For those who find it difficult to increase retirement contributions immediately, implementing gradual increases tied to salary raises can painlessly boost savings rates over time.

Taking control of your retirement future

The key to retirement readiness lies in taking proactive steps early and consistently.

Assess your current position: Calculate your existing retirement savings, determine your desired retirement lifestyle, and identify the gap between your current trajectory and your goals.

Set realistic targets: While a 75% replacement ratio is ideal, a 50% replacement ratio might be more achievable and still provide a comfortable retirement, depending on your circumstances.

Eliminate financial obstacles: Prioritise paying off debt before retirement to maximise available retirement income.

Seek professional guidance: Given the complexity of retirement planning and the stakes involved, professional financial planning advice can be invaluable in creating a personalised retirement strategy.

Act now!

The stark reality is that traditional retirement at 65 is becoming increasingly difficult for most South Africans. However, this doesn’t mean the situation is hopeless. By starting early, saving consistently, and making informed financial decisions, it’s possible to achieve financial security in retirement.

The key is acknowledging that retirement planning isn’t just about reaching age 65 – it’s about ensuring financial security for potentially three decades of post-work life.

Whether that means retiring later, saving more aggressively, or developing multiple income streams, the important thing is to start planning now.

The alternative – working until age 80 – should serve as motivation for every South African to take their retirement planning seriously.

The time to act is now, regardless of your current age or financial situation. Every year of delay makes the challenge more difficult, but with the right strategy and commitment, a comfortable retirement before age 80 remains achievable.

For more resources and support on your financial journey, visit the Insure Your Future  Money Bootcamp website and explore the tools available to help you manage your money effectively.