A recent survey by Credit Suisse shows that while nearly 80% of South African retirees receive a pension, it replaces only 19% of their final salary—far below the 59% average among OECD countries.
This gap is becoming more pronounced as inflation and economic pressures continue to rise, leaving many retirees struggling to maintain their pre-retirement standard of living.
Sanlam Corporate’s analysis provides further insight, revealing that the true retirement age in South Africa is closer to 80 than the traditionally expected 65.
This “retirement age gap” presents significant challenges for individuals, businesses, and the state.
According to Sanlam’s data, only 25% of South Africans are on track to retire at 65, and the majority will need to work an additional 15 years to secure financial stability in retirement.
This extends the working life of many individuals, putting pressure on both their personal financial planning and health as they navigate longer careers.
The analysis, based on over 300,000 Sanlam Umbrella Fund members, highlights that the average South African is projected to achieve only a 25% replacement ratio, far below the 75% needed for a comfortable retirement.
With many people starting work later due to delayed entry into permanent employment and inflation and salary escalation rates projected at 5.25% annually, the gap between expected and achievable retirement savings is widening.
This trend creates significant challenges for individuals who must plan for longer working lives, maintain employability, and manage health into their seventies.
The 10X Retirement Reality Report revealed concerning trends in South Africa’s retirement planning, with most South Africans failing to adequately prepare for their future. While some do make plans, many are uncertain about their ability to support themselves due to ongoing inflation and the challenging economic climate.
The report found that 29% of individuals over 50 believe their retirement plans are “definitely not” or “probably not” on track, underscoring the difficulty of catching up on savings after 50.
For those later in their careers, the challenge is even more pronounced. The report highlights that after the age of 50, individuals would need to save around 60% of their income to retire comfortably, a daunting task for many.
The majority of retirees express dissatisfaction with their current financial situation, either lacking sufficient income or feeling they could live more comfortably with a higher retirement fund.
The report also points out that many South Africans simply cannot afford to save for retirement, citing limited financial means as the primary barrier.
Experts from institutions like Allan Gray and Discovery stress the importance of early and consistent retirement savings.
Allan Gray recommends replacing 75% to 80% of pre-retirement income to maintain a similar lifestyle, while Discovery suggests saving at least 15% of annual income from an early age to take advantage of compound growth.
Sanlam advises that retirees should aim to have R2 million saved for a modest retirement, with R5 million or more needed for those with more ambitious lifestyle goals.
As the economic landscape continues to shift, the need for proactive retirement planning is more crucial than ever. Financial experts emphasize the importance of starting early, contributing consistently, and seeking professional advice to secure a financially stable future in retirement.
