by | Feb 1, 2022

Despite taking steps to save, millions of South Africans are at risk of having to make significant lifestyle-related downgrades when they are no longer actively earning an income. Twanji Kalula explains why proactively revisiting your financial plan annually can help you avoid this scenario.


Being able to retire comfortably is one of the most common goals when it comes to long-term financial planning. Most of us will reach a point in our lives where we are no longer generating a regular income to cover our living expenses and will need to draw one from our accumulated savings. Sadly, many investors face the realization that they simply do not have the money to maintain the lifestyle they have become accustomed to, even though they took the right steps to save for retirement. Worse, this realization often occurs when there isn’t enough time to do anything about it.

How much money do we need for a comfortable retirement?

One of the reasons we miss the mark is that we don’t really understand how much money we will actually need at retirement. Most personal finance experts suggest that you need to be able to replace at least 75% of your final income at retirement age to maintain a similar standard of living. This generally means that we should be saving anything from 12% to 17% of our income from the day we start working.

According to a recent retirement industry survey that explored the retirement saving habits of income-earning South Africans, the average South African retiree can replace just 31% of their income with their retirement savings. In real terms, this means that after working for decades, most of us will be forced to live on less than a third of our preretirement income or face the very real risk of outliving our retirement nest egg.

…you need to be able to replace at least 75% of your final income at retirement age to maintain a similar standard of living….

The data from the survey also shows that just 9% of retirees are able to replace 80% or more of their income. These stats are supported by the anecdotal feedback from independent financial advisers who say that 90% of their clients are unable to retire comfortably. This means that many retirees will inevitably become reliant on the financial support of loved ones to make ends meet or have to find ways to continue generating an income.

Investing for retirement is not a box-ticking exercise

Many of us get off to a great start: We proactively start a retirement annuity and/or join an employer’s pension fund and continue to make regular contributions to these investments and forget about them for many years – on the assumption that we are on track and that our financial needs will be taken care of when retirement comes. And that is where it ends. However, as with any goal, investing for retirement requires us to set specific targets and perform regular reviews to ensure that the actions we are taking will lead to the desired outcomes.

Given that accumulating a nest egg takes decades, investors need to consider the factors that may shift the goal posts over time:

  • Markets can be volatile
  • Inflation will affect your buying power
  • Lifestyle costs tend to creep higher as we earn more
  • We are living longer
  • Our circumstances change over the course of our lives

Take action to ensure a dignified retirement

The easiest way to mitigate the risk of not having enough money when you retire is to perform an annual review of your retirement investments to ensure that your projections are accurate and that your contributions are sufficient to meet your end goals.

…The easiest way to mitigate the risk of not having enough money when you retire is to perform an annual review of your retirement investments… 

Those of us who save for retirement via our employers often make the mistake of anchoring on the default contributions suggested by our employers’ retirement saving schemes when we start working. In most cases, this means that we are not saving nearly enough. You can remedy this by increasing your contributions or supplementing these savings with regular or lump sum contributions to a retirement annuity in your own name. You can also supplement your existing retirement savings with contributions to a long-term investment product, such as a tax-free investment, which can help you increase the amount of cash available to you at retirement.

A professional perspective can drastically improve your outcome

There are a number of general guidelines that can help you determine how much you should be saving towards your retirement, taking your time horizon and age into account. However, when it comes to retirement, it is dangerous to adopt a one-size-fits-all approach.

An annual consultation with an independent financial adviser can be incredibly useful. Financial advisers can help you explore your unique circumstances as they assess your current living costs and help you determine how much you need to save at your current life stage for a comfortable retirement.

Advisers can also provide you with an informed, holistic perspective of your financial position and give you the tools to ensure that you avoid reaching a financial day zero in your retirement years.