Retirement Planning: The Ultimate Guide for South African Investors in 2023

Navigating the path to financial freedom can be a challenging journey filled with critical decisions, but with “The Ultimate Retirement Planning Guide”, you can retire smart and secure. Whether you’re inching closer to the retirement age, or just setting out on your career path, it’s essential to have a clear vision of your retirement goals. From maximizing your retirement savings to exploring an array of retirement investment options, including offshore investing, this guide provides comprehensive insights to help you strategize effectively. Read on to gain the knowledge and tools you need to ensure a comfortable retirement. And if you’d prefer to watch the video below to get the main highlights, do that too.

retirement planning guide, retirement goals, retirement savings
Retirement Planning Steps to follow

Table of Contents

What is Retirement Age?

The official minimum retirement age in South Africa is 55. Because from the age of 55 you are able to start drawing on your retirement savings. The reality however, is that most people don’t have enough money to be able to retire at 55, and need to keep working well into their 60’s. That’s not to say you can’t choose to retire before the age of 55. If you’re very successful and have accumulated a lot of wealth, you can retire whenever you want. 

Flaws in the model?

As we move deeper into the 2020’s – the idea of retirement planning (in the traditional sense) – some would argue – is starting to become obsolete. Start work in your early 20’s, enjoy a 40-year working career if all goes well – so that you can have enough money to enjoy in your post-retirement life for another 30 years or so. This form of retirement planning worked in the days of defined benefit pension schemes where you worked for an employer for life (more or less) and had a guaranteed pension income provided by the company until you die. With a few exceptions, those days ended 30 years ago. Since then – the world has moved to defined contribution pensions where you make most of the contributions (hopefully with some employer help), carry all the investment risk, market volatility has increased, returns are uncertain – and as we move into an era where we’re all living longer – it has become a lot harder.

What do the stats say?

Statistically, only about 6% of people in South Africa achieve what would be described as a comfortable retirement, which broadly speaking is defined as achieving a replacement ratio (RR) of 75% of your final gross income at the point you retire. That’s the number that assumes you should be able to maintain the same standard of living once you stop working (because debts like your home loan are paid off).

Those stats are not exactly encouraging. Is there more we can and should be doing? Absolutely! But it helps first understanding the framework in which we are operating so that we can all start making better decisions and begin to take ownership for achieving our own financial security and independence. 

Pre vs Post Retirement Planning

Pre-retirement planning includes saving and investing to accumulate enough money in order to be able to retire. Post-retirement planning means taking that money and investing it to provide you with an income in your retirement years. The products, tools and how you think about investing in each case is different. Many developed countries have strong social systems that suppport you in retirement via a grant or government pension. That means you carry less responsibility for making your own retirement contributions. It won’t be enough to retire on comfortably so you must still save and invest yourself. But they go a long way in helping you carry the burden once you eventually stop working. In South Africa, we’re not that lucky. We have a means tested social grant that provides about R2,000 per month and is designed to help the poor and less fortunate. For the rest of us, we carry full responsibility. That means we need to plan accordingly.

Ideal Retirement Goal: What is a Successful Retirement?

When setting a goal, what constitutes a successful and happy retirement is different for everyone. The lifestyle you aspire to lead and the cashflow needed to support that lifestyle are your ultimate barometer. But to create some sort of financial benchmark and one which the retirement industry pretty much adopts is the following:

To achieve a comfortable retirement (75% RR) – you need to invest 17% of your income for 40 years.

Like all things in life, stats like these are there to guide and inform your thinking. They’re not the ‘be-all and end-all.’ What you need could be very different. Nevertheless, think about that for a second. Investing almost one fifth of your gross income for your entire 40 year working career to achieve your retirement goals. That’s no easy feat. It means you need to start early, stay committed, and keep working.

The Alexander Forbes Member Insights 2021 survey with data on about a million retirement fund members across their various employer retirement funds that represent almost 2000 schemes – shares a lot of interesting information and allows us to unpack important facts and how they could apply to achieving your retirement goals.

Retirement Savings: Average Contribution Rates

The average retirement savings contribution per member (including by the employer) is only 12.9% – significantly less than the 17% needed. This is directly into the fund and excludes risk assets and administration costs. So takeaway number one, we’re not saving enough.  But at least the trend is improving if you compare contribution rates from 2012 to 2020.

Retirement Savings: Average Replacement Ratio

In terms of total retirement savings, the report shows that the average member is only on track to achieve a replacement ratio of just over 40% – almost 50% below where it needs to be. And put into context further, the average RR for people who actually retired in 2020 was only 31%. The primary reasons for those low numbers – not saving enough and not preserving benefits when switching jobs. To add some colour –  you need a fund credit of about 11X your final salary to hit that 75% RR. So, if your salary is R1 million per annum at retirement for example, you need about R11 million in accumulated retirement savings.

Retirement Planning Savings by Age: RRs for different age groups

retirement savings by age group

Retirement savings by age group illustrates that the younger you are (in other words have the longest time to contribute), the higher the probability you have of achieving a 75% RR. The stats tell us if you’re younger than the age of 25 currently, almost 30% of retirement fund members in your age cohort are on track to achieve a RR of 75%+ at retirement. That drops to about 20% if you’re between the ages of 25-30 … and the numbers fall off alarmingly from there.  This highlights the importance of time. Starting young and staying discplined through your entire retirement savings journey. If you leave it too late, it becomes very hard to catch up and means you will need to save a lot more than 17% of your income.

Replacement Ratios at Age 65 Depending on Contribution Rates

replacement ratios based on contribution rates

Why starting young and time matter. If you start saving at 20 with a 17% contribution level, you can achieve about a 90% RR at retirement. Even investing slightly less at 15% gets you to an 80% RR. Wait 5 years until you’re 25 and you still just about make it – but wait any longer than that and it becomes a lot more difficult to reach the target. If you start saving at 30 with a 17% contribution, you’ll only end up at about 60%. Could that be enough? Sure, it all depends on your ideal retirement lifestyle. But don’t lose sight of the fact that your biggest friend is time. More on that later.

Retirement planning: Is it all doom and gloom?

What these numbers don’t tell us is what people are investing in outside of their retirement fund assets that can also play a role in achieving a comfortable retirement. Property, discretionary investments, offshore etc. Being diversified across other assets and avenues is important. Something to think about as well is that if you’re in your 20s or 30s – by the time you retire in the 2050’s and 2060’s – the way we think about retirement will probably be very different. By then, living a lot longer will be the norm due to advances in technology and science. The world of work due to AI and robotics will be very different too. The gig economy will be more entrenched, and the skills in demand may well be unlike anything we are used to today and could mean you keep working a lot longer – but perhaps not in the way we think of today where you work for one company and go into an office every day. Planning for the future has many unknowns. That doesn’t mean you shouldn’t start. Financial planning is going to be more important than ever while remaining flexible and adaptable to the world as it evolves.

tops jobs of the future

Retire Smart Principles

If you want to retire smart, there a couple of foundational principles you may want to follow. Adopt these and you’re on the fast-lane to achieving success. Don’t, and you’re making life a lot harder for yourself.

Retire Smart Principle 1:

Investing for your future and being able to retire smart isn’t possible unless you sort out your finances today. Living within your means and being smart with your money is where it begins. It’s no more simple or complicated than that. And it doesn’t mean you have to live like a monk. Spend more on the things that give you real pleasure and meaning (often experiences) – and spend less on junk and wasteful stuff that you soon get bored of (often things).

Interest fact: Statistically, males spend more than 50% of their income financing debt like houses, cars and unsecured credit. Females tend to be better at managing their money and spend 20-40% of their income at paying off debt.

Just think about that for a second and imagine what would be possible if money being spent on debt is being invested instead? Sure, some debt is unavoidable and necessary. Hard to buy a house otherwise. But you can choose to buy a house that isn’t on the limit of your affordability and forces you to live on the edge.

You don’t have to buy that expensive car (often a male thing), when you could get around in something less expensive that frees up money for other things. You can make the decision to avoid credit card debt and only buy things you can afford to pay for in cash. It’s those little things that make a big difference and are what allow you to get ahead financially.

Retire Smart Principle 2:

Use the power and advantage of compounding. This really is the single most important rule you can follow. By way of a very simple example – look at the difference compounding the same investment has over a 30 vs 40-year time frame. R5,000 per month (no escalation to keep it simple) after 30 years gives you R7.5 million. Over 40 years you get to R17.5 million assuming an 8% p.a. return on both. And of that R17.5 million capital sum at the end – only R2.4 million was contributions.

This isn’t about the actual numbers but showcases the importance of time. Compounding works over decades. Start early, stay committed and make increases to your investment whenever you can. Instead of lifestyle creep – the bigger houses and nicer cars – take advantage of investment creep by using those promotions and salary increases to invest in your future.

retire smart. compound interest

Retire Smart Principle 3: 

Invest in yourself. This is probably the most important thing you can do to improve your socio-economic potential. What skills, knowledge and tools can you invest in that will give you greater financial leverage? You might be lucky and have received the best formal education and are already on the fast-track to success, but even then, there are probably areas you can invest in that will allow you to maximise your potential. If you haven’t had that privilege, what can you do to upskill yourself? It doesn’t have to be via formal education, we all know of success stories achieved from people who started with very little and never enjoyed the benefits of formal education.

Retirement Investment Options

There are a number of retirement investment options. And investing can be done in many different ways. There is no right or wrong approach. Achieving financial freedom will mean investing in different assets, products and strategies to maximise your chances of success. Of course, it’s in the interest of the government to incentivise you to contribute towards your own future financial security so that you will be less reliant on the state in your old age. That’s why they incentivise retirement planning by providing tax breaks and advantages to do that via various approved retirement funds.

Approved Retirement Funds

In South Africa, an approved retirement fund is a pension, provident, preservation or retirement annuity fund. You receive a tax deduction of up to 27.5% of your income capped at R350,000 per annum across all your retirement fund contributions. You can begin to access the capital from the age of 55 (minimum retirement age) via way of 1/3 as a lump sum (of which now R550,000 is tax free) – and use the rest has to be used to buy an annuity (guaranteed or market-linked) that will provide you with an income in your retirement years.

Pension and provident funds are employer sponsored and retirement annuity funds are usually for individual contributions (some employers now offer Group RAs). Growth on assets in the fund accumulate tax-free until you reach the point of retirement and begin drawing an income (which is taxable).

It makes sense to take advantage of not only the tax breaks (why pay more tax that could be used for something worthwhile) – but to max out any employer matching contribution, e.g., if you contribute 7.5% and they match that at 7.5%, take what you can get. It’s free money.

And when you move jobs, don’t be tempted to take the cash (which will change anyway soon with the retirement reform proposals) but be sure to use a preservation fund to keep your retirement savings intact. Read more on the new proposed two-pot retirement system.


If you belong to an employer-sponsored fund, take the time to understand the benefits. How do you maximise contributions (your own and employer)? What investment choices do you have and what is the best selection for you? (If you have anything longer than 7 years to go until retirement, always choose the options with the highest equity allocation). What other benefits do you get, or do you have access to – medical, share options? And if it seems confusing, consider working with a financial planner to help you make sense of everything.

Retirement annuities are of course popular vehicles used to make individual retirement contributions. Used well, they also have many benefits. Unlike with pension and provident funds, they don’t give you access until you reach the age of 55 (if you move jobs) which is a good thing. Read our article on the benefits of using a retirement annuity as part of your retirement planning strategy. 

Retirement Investment Strategy: Regulation 28 Blessing or Curse?

Perhaps a contentious topic and something the industry rarely talks about – but over investing in retirement vehicles (despite the tax advantages) doesn’t necessarily make sense either. See our analysis on that below. Regulation 28 puts a cap on returns. If you’re young and have a long-term investment time horizon, why wouldn’t you want to invest all your money into the asset class that provides the highest potential for long-term returns, namely equities? I don’t want bonds in my portfolio at this point because I want to maximise growth. Yet that is what regulation 28 forces on you.

The other major limitation is the cap on offshore exposure. The South African investable universe is tiny compared to what is available globally. Retirement funds can now increase their offshore allocation to 45% from what used to be 30% – which will hopefully improve returns going forward – but those restrictions are still limiting.

Underwhelming Returns:

Study the returns of the fund category which houses most South African Retirement Fund Assets (SA Multi-Asset High-Equity) – or more commonly known as ‘balanced funds’- over the last 10 years. The median return has been 7.50% p.a. (as at end June 2023) – nowhere near the Inflation Plus 5 benchmark most are aiming to achieve – and which most financial planners will model as a return expectation when helping you plan for your retirement.

If you’re only achieving returns of Inflation Plus 2-3 (as the above figures suggest), reaching a comfortable retirement will be extremely difficult, even if you do everything else right, i.e., contribute 17% of your income for 40 years to a retirement account.

Hopefully looking forward the picture changes as the more relaxed regulation 28 rules allow for greater offshore exposure and our domestic equity market performs better over the next decade than the last – but thinking creatively how to improve returns and opportunities to invest in are also important.

Tax Free Savings Accounts

Because they are tax friendly and easy to set up, these are another vehicle to consider using as part of your overall retirement investment strategy. You can invest up to R36,000 per annum and have a lifetime contribution limit of R500,000. All growth and contributions in the account is tax-free (even when you withdraw). So, these could be a good complementary tool in your retirement planning arsenal. And they don’t have the investment constraints retirement assets do.

Just to run some basic numbers by way of example. Assume you start at 30 and invest the R36K p.a. max contribution. It takes you 14 years to reach the lifetime contribution limit. Imagine you’re generating a return of 10% p.a. (just to keep it simple). After 14 years you’ll have about R1 million in the account (contributions + growth).

Let’s then say you have another 20 years to go until your retirement and that R1 million (no more contributions allowed) continues to grow at 10% p.a. You now have just over R7 million in your TFSA which is entirely TAX FREE. Now imagine using all that money to live off fully tax-free before you begin to draw an income from the savings you’ve accumulated from your approved retirement funds?

Invest Offshore

The real measure of wealth globally is still measured in USD. Being rich in Rand terms is nice, but are you financially secure and independent on a hard currency basis? The world has become smaller and more interconnected so many of us like to think of ourselves as ‘global citizens’ which means investing and planning accordingly.

One of the surest long-term trends to take advantage of is the depreciation of the Rand. In the early 90’s the Rand/Dollar was about 3:1. Now it’s in the region of 18 against the dollar. That’s a 500% loss in value – or stated another way, free returns. The obvious reason for investing offshore is diversification from an investment and currency perspective. And letting that currency depreciation work in your favour over a long period of time is a nice boost. The opportunity set for investing globally is also enormous relative to the local market.

You may also end up emigrating or living overseas (and money offshore already then helps tremendously) – but the simple maths of having ‘hard’ currency as a source of capital to live off in a country with a weaker or emerging currency (like ours) can make a big difference.

All the foreign ‘swallows’ who spend half the year living in SA and the other half at home in the UK, Germany and whatnot because their Pounds, Euros and Dollars go so much further here tells you everything you need to know. And if foreign travel is something you enjoy doing – imagine having a pot of offshore investment capital you can draw on to fund that (instead of an ever weaking Rand).

Also, consider how much of your wealth is tied to the Rand and domestic economy. Your property, your retirement fund assets, and possibly other discretionary investments. Why wouldn’t you want to diversify your balance sheet offshore?

Read Next: The 10 Biggest Retirement Planning Mistakes to Avoid

Retirement investing compared to offshore investing

When investing for retirement, what’s better?Investing offshore or investing via a retirement fund? We did an analysis to try and come up with an  answer. We modelled 30 years of returns comparing the category averages of balanced funds against a few different offshore indices, i.e. the S&P500, MSCI World and Global Equities. We also threw SA equities into the mix. What we were trying to determine is whether tax advantaged retirement investing via a typical balanced fund, will leave you better off than investing directly offshore without those tax advantages (but where you’d expect to generate better returns).

A few caveats and some points on the assumptions used. The data available going back 30 years is not always great and adjusting inputs for different regulatory regimes gets complicated (e.g. tax deduction on RAs and CGT on discretionary investments). So, we assumed a tax deduction of R350K p.a. adjusted for inflation, 40% marginal tax rate and inclusion rate, the annual CGT allowance is ignored, as is DWT.

Investing in a retirement annuity vs investing offshore

The results show the following: 1.) Over the 30 year time frame, the S&P500 comfortably comes out on top. A lot of that is due to the returns generated over the last decade with big tech dominating and low interest rates supportive of growth. 2) The retirement fund investment comes in next and there were long periods of time it actually outperformed the S&P 500, like in the 2000’s when the S&P500 went nowhere and emerging markets like SA had a fantastic decade (thanks largely to China and its demand for resources.) But the last decade wasn’t great for balanced funds in SA more broadly with returns on the JSE muted and the restrictions on offshore investing. 3) The MSCI world pips SA equities, but what we didn’t tell you is that we took the tax refund from the RA every year and added it here so it juiced its returns slightly. 4) Despite global equities having a strong last decade, limited data in the early years doesn’t offer a great point of comparison.

Conclusion: What is the Optimal Investment Mix for Retirement Savings?

Like all things in life, returns are cyclical. So betting everything on one horse is never a good idea. Retirement planning should involve investing across products and assets, both domestically and offshore. But make offshore investing a conscious and deliberate part of your strategy. In the long run, you won’t regret it. How much should you invest in each? It really depends on your circumstances and how much you can afford. The most important thing to do, is make a start and stay committed. And as your wealth and financial flexibility grows, you can add different strategies and approaches to the mix.

Read Next: A few possible international stocks to buy now that are supported by major investment megatrends like artificial intelligence.

Post-Retirement Planning

Once you’ve reached retirement age (55 onwards), you move to a stage of life where deaccumulation rather than the accumulation of assets becomes your primary concern. Said differently, it means investing for income rather than growth. All the money you’ve accumulated in your retirement fund assets (and hopefully others) now needs to be invested to provide you with an income for the rest of your life. And you must also decide between two fundamentally different options. You can either purchase a guaranteed income for life via a guaranteed life annuity, or you can choose an investment linked income in the form of a living annuity.

Further Reading: The Best Balanced Funds for Retirees to Consider

Henceforward Retirement Insights 2023

To help you make that decision and allow you to make an educated and informed choice about how best to invest your retirement capital, we have authored the Henceforward Retirement Insights 2023 report.

It’s a detailed and comprehensive guide that prepares you for retirement and what you need to do to retire successfully. Click on the image to find out more.

Carl-Peter Lehmann
Carl-Peter Lehmann

Carl-Peter is a Director and Partner at Henceforward. He is a Certified Financial Planner® and has more than 20 years industry experience, having also worked internationally helping people invest their money and plan for retirement.

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