Many South Africans still associate retirement with the age of 65, but the reality is far different. According to internal member data from Sanlam Corporate, the true retirement age for most citizens—the age at which they can afford to retire comfortably—is closer to 80.
Kanyisa Mkhize, CEO of Sanlam Corporate, is calling for collaboration between corporates, financial institutions, and other stakeholders in the retirement funding industry to create a more sustainable environment where more South Africans can retire with financial security.
“Our internal member data indicates that while 65 remains the official retirement age, the majority of South Africans cannot afford to retire at this age. Most will need to work an additional 15 years to achieve financial security in retirement.
“This 15-year gap presents a significant financial challenge and requires a fundamental shift in how we approach retirement planning and employee benefits in South Africa. The disparity between expectations and reality poses challenges for individuals, businesses, and the economy, underscoring the importance of holistic benefits to secure a better future for our workforce.”
Sanlam Corporate’s insights are based on over 300,000 Sanlam Umbrella Fund members, demographic trends, actuarial data, and other economic factors impacting the country’s retirement outcomes.
According to the data, the average South African is expected to achieve only a 25% replacement ratio (the portion of their final salary they’ll receive as retirement income) at the traditional retirement age of 65. This is significantly lower than the industry benchmark of 75%, which is generally regarded as the threshold for a comfortable retirement.
According to research by Just South Africa, a retirement income and life annuity specialist, the average South African household needs over R7 million to retire comfortably, which translates to most people not having enough saved to retire comfortably, with many only reaching around 60% of this target amount; this is based on a typical household income of R300,000 per year.
Most South African retirees only replace around 30% of their pre-retirement income with their savings. To maintain a similar lifestyle after retirement, many experts recommend saving a lump sum equivalent to 15 times your final annual salary.
Sanlam Corporate’s internal analysis assumes:
Projected investment returns of 9.25% per annum based on a moderately balanced portfolio.
Estimated inflation and salary escalation rates at 5.25% per annum, aligned with the Reserve Bank’s mandate.
A 35-year savings term, recognizing that many South Africans face delayed entry into permanent employment.
An initial working age of 30.
What this new retirement age means for South Africa
For individuals: The extended working years will have profound implications on personal financial planning and career development. Workers must now consider strategies for maintaining employability into their seventies while managing their health and skills to stay competitive in the job market.
For companies: Employers face complex challenges when managing an aging workforce while balancing transformation objectives. Sanlam Corporate’s data reveals tensions between retaining experienced older workers and providing opportunities for younger employees in a country with high youth unemployment and a large youth population. With nearly 60% of South Africans under the age of 25, as per Stats SA, younger workers face increasing competition for jobs.
For the state: The data highlights significant implications for South Africa’s social policies and welfare systems. The old age pension means test, designed to assess financial hardship among senior citizens, presents a paradox. On one hand, individuals with retirement savings may be disqualified from accessing state support. On the other hand, these savings are often insufficient for a comfortable retirement, leaving many in a financial grey area. This underscores the need for a more balanced approach to retirement savings and state assistance.
Mkhize recommends several interventions to help address the retirement age gap in South Africa, including:
Life cycle contribution options: Implementing automatically escalating contribution rates that align with annual salary increases can improve retirement outcomes. As salaries increase, so should contribution rates. By automating these increases, employees can boost their savings without sacrificing their current standard of living.
Enhanced employer matching programmes: Expanding and optimizing employer matching contributions can accelerate retirement savings. When employers increase their matching thresholds or offer more generous matching ratios, employees are incentivized to save more, effectively receiving additional compensation through retirement contributions. This benefits both employers and employees and takes advantage of tax benefits available through retirement savings vehicles.
“While the 80-year retirement age is a challenging reality, it presents an opportunity for innovation in our approach to work, savings, and retirement planning. If we want to change this reality, we need a collective commitment to providing holistic financial solutions that can help reduce the retirement age and accelerate a better working South Africa.”
