Retirement in actual Rand values

Feel free to reach out to PSG Wealth Manager Schalk Louw directly.

However, if you know you won’t be able to live on that amount and have made no or insufficient provision for retirement, then, unfortunately, you do need to keep reading.

In fact, I’m pretty sure that for most readers, this amount will not be nearly enough. Data released by Statistics South Africa (Stats SA) and Statista makes it very clear. Government’s grant will not be sufficient for almost anyone in South Africa currently earning a salary. According to Stats SA’s most recent Income and Expenditure Survey (released 28 January 2025), the average annual income per South African household in 2023 was R204 359. That’s about R17 000 per month. Statista’s estimate was slightly more optimistic, indicating that the average monthly salary for employed South Africans in the formal non-agricultural sector was R26 817 in 2023.

However, the most essential figure remains what you actually need to live on. This is where a good, regularly updated budget becomes invaluable. It helps you adjust your spending according to your circumstances. Everyone will have their number, and that number is your starting point. Your monthly expenses are what must remain after you have taken care of your retirement savings.

Let’s look at Stats SA’s data again: in the same recent survey, they report that the average annual consumption expenditure for South African households in 2023 was R143 691 or approximately R12 000 per month. This means that the average South African household spent approximately 70% of their income on goods and services to meet their needs and wants. If you read this and realise you spend double, triple or even ten times that amount each month, you need to do some serious calculations. For example, if you spend twice as much (R24 000 per month), then assuming you spend 70% of your income on consumption, you need to earn about R34 000 per month before tax to sustain that lifestyle.

Let’s take this example further. To retire comfortably in South Africa, financial experts generally recommend aiming for a replacement ratio of 75% of your final salary, depending on your lifestyle and post-retirement goals. If you’re assuming that you’ll need no more than 75% of your current monthly income of R34,000, you would need to have accumulated a retirement nest egg of at least R6.3 million (in today’s terms). Why so much? The Association for Savings & Investment South Africa (ASISA) has developed guidelines for living annuities that specify recommended withdrawal rates based on age and gender. For a retiree aged 65, the recommended annual withdrawal rate is currently 4.2% for women and 4.9% for men. Using the 4.9% rate for men, you would need R6.3 million in capital to generate about R25 700 per month before tax (75% of R34 000).

Now comes the more difficult part. If you’re a young person, say 30 years old, already earning R34 000 per month and reading this now, I have good news: time is your friend. But don’t do what we so often do with diets, telling ourselves we’ll start on the first of the next month or like I always do, on the next Monday. Tomorrow is always another day. No, start today. For a 30-year-old starting today, you’d need to save about R6 083 from your income each month, increasing this by inflation (let’s assume 5% per year) every year. If you stick to this strategy, with an inflation-linked average increase of 5% per year, and your investments grow by 10% per year after costs, you’ll have sufficient capital by age 65 to provide you, in today’s money, with R25 700 per month before tax at ASISA’s recommended withdrawal rate. In other words, you need to set aside about 18% of your gross income and make sure your salary grows at least by inflation each year to reach your goal.

Capital required in today’s value to cover consumption expenditure over different time periods, as well as how much you would need to save monthly

If you’re already 40 years old and your retirement planning looks like my diets over the past few months (i.e., non-existent), the news is less good, but it’s still not impossible. You’ll need to start saving about R11 325 per month now to achieve that same goal by age 65. That’s about 33% (a third) of your income, but SARS provides significant tax benefits that will make it less painful. However, if you’re 55 and still haven’t started, the task becomes significantly more challenging. You would need to save more than your entire pre-tax salary (or 123%) to reach the same goal, which realistically means you’ll have to cut back your spending significantly when you retire in ten years. Many people tell me this is so impossible that they’d rather give up. But that mindset couldn’t be more wrong. Even if you can only save enough to provide R5 000 per month, that’s R5 000 you don’t have to rely on anyone else for.

My short message today: when it comes to retirement, sooner is better, but your real starting point should be today.