Following the release of the 2023/2024 Retirement Reality Report, it's alarming to note that only 6% of South Africans have adequately saved for retirement.
This underscores the need to explore strategies, such as working longer, that could significantly enhance retirement readiness, says 10X Investments.
The financial services firm said that just a single additional year of work can dramatically improve your retirement outlook.
The benefits are twofold: not only are you adding to your retirement savings, but you're also giving yourself an extra year to let those savings grow. If you earn R80,000 a month and save 15% for retirement, that’s an additional R144,000 in savings annually, excluding employer contributions and tax benefits.
But the real power comes from reducing the time you'll spend relying on your savings. 10X looked at the math:
Assuming you want R50,000 a month in retirement and you're withdrawing 5% annually, you'll need around R12 million to sustain this lifestyle for 20+ years. By working just one more year, you're giving your savings more time to accumulate and grow, which means your nest egg will last longer.
For example, if you already have R5 million in your retirement portfolio and it grows at 6% above inflation, that extra year could add about R300,000 to your savings without you contributing a single additional rand.
Note: This example assumes stable returns, inflation, withdrawal rates, and excludes market fluctuations, fees, and taxes for simplicity.
Reducing your monthly expenses before retirement can have an outsized impact. If you lower your monthly spending by R5,000, not only are you saving that extra R5,000, but you’re also reducing the total savings needed to cover that expense in retirement.
For instance, cutting back on R5,000 in monthly expenses means you’ll need R1.2 million less in retirement savings to fund that R5,000 monthly expense at a 5% drawdown rate.
Additionally, drawing less from your living annuity means less taxable income, saving you money on taxes—money that stays invested and grows for you in retirement.
While managing daily expenses is vital, one of the most impactful factors on your retirement timing is investment fees. While the difference between paying 1% versus 2% or 3% annually may seem small, it can significantly alter your retirement plans.
For instance, if you have R6 million in savings and need R25,000 monthly, paying 1% in fees might allow you to achieve your goal with a 5% drawdown rate. But if you’re paying 2% in fees, you'd need to reduce your drawdown rate to 4% and would require R7.5 million instead of R6 million—an additional R1.5 million.
This could mean working longer to accumulate that extra amount or reducing your retirement income by R5,000 per month to maintain a sustainable drawdown rate. The key takeaway: lower fees allow your savings to grow faster, potentially allowing for earlier retirement or a lower risk of running out of funds.
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