How much must you save for Retirement in South Africa
South Africa has a problem with retirement, as only 6% of the population will be able to retire comfortably.
According to a report by 10X Investments, the Retirement Reality Report 2023 is based on the 2023 Brand Atlas Survey.
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.
Most South Africans haven't planned for retirement, and those who have aren't sure if they'll be able to retire comfortably.
Approximately half of the individuals with a retirement plan stated that their plans were likely on track. However, 29% of people who are over 50 years old expressed that their plans were not on track.
After turning 50, it's very hard to fix any savings shortfall. To retire comfortably, you need to save around 30% to 40% of your monthly salary.
Almost three-quarters of respondents whose plans were not on track said they were simply not able to save enough for retirement.
The survey shows that many South African consumers are facing tough economic conditions.
Many people believe they will need to keep working even after they officially retire.
The report also showed that fewer people can retire on their own terms where in 2021 this figure was 70% and this year, it dropped to 60%.
This trend shows that due to difficult economic times, more employers are making their older workers retire early.
How much money you need to retire comfortably
It's important for South Africans to plan for retirement early. Experts suggest saving twenty times your yearly salary for a comfortable retirement.
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.
Choosing the right starting income level is important for investors to manage 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.
To have a retirement income of 5%, you must save a lump sum that is 20 times your final salary. This lump sum will be used to invest in an annuity.
This is the amount required to generate an income equal to 100% of your final salary post-retirement.
Taking out only 5% should give you enough money for 30 years, keeping up with inflation and ensuring a comfortable retirement.
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.
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