How to plan for a comfortable retirement

South Africans have three options available when it comes to saving for retirement. These are occupational retirement plans, private investments to supplement occupational plans, as well as the state social assistance grant programme.

The unfortunate reality is that far too many South Africans find themselves wanting when it comes to retirement funding. Two main reasons for this are:

  • Poor preservation When changing jobs, far too many people succumb to the temptation to consume their savings rather than preserve them.
  • Delayed savings South Africans often defer saving for retirement in order to meet their short-term spending needs.

Where possible, individuals need to take accountability for their own retirement and understand what behaviours will lead them to a positive result. Knowledge is power, as the old adage goes, and understanding some of the basic principles of retirement savings will help you make choices now that you’ll be thankful for later.

Know your replacement ratio

Your replacement ratio compares your income immediately prior to retirement against your income after retirement.

Most investment advisors suggest a replacement ratio of between 60% and 75%. However, individual circumstances play a significant role; what is a comfortable ratio for one may not be very comfortable at all for another.

Seven factors that affect your replacement ratio

Period of savings

Starting saving early can have a significant impact on your eventual retirement savings outcomes, thanks to the power of compounding. See our infographic insert for more information on how compounding works, and why it has such a big impact over the long term.

Contributions to savings

An entirely obvious point, but it bears repeating: The more you put aside for your retirement every month, the higher your replacement ratio will be when you retire. Be sure to consistently save an appropriate monthly amount, given your current income and retirement objectives.

Investment returns

Investment returns are not entirely within your control, since it is impossible to accurately predict what the market will do over time. However, developing an investment strategy that is appropriate for your individual circumstances can have a big impact on your returns, and this aspect is within your control. A financial advisor can help you devise an investment strategy that is tailored for your specific circumstances.


The costs associated with your retirement savings will reduce your replacement ratio. Tax is included in this category, as are investment management costs and financial advisor fees. Considering the impact of costs is crucial when it comes to retirement planning, so be sure you know exactly what you are paying with any new (or existing) investment.

Occupational plans are generally a tax-efficient way to save and these plans usually have access to institutional pricing, which is more cost effective than retail. There are also a number of tax efficient investment products you can use to supplement your savings, such as retirement annuities.


People today change jobs more frequently than they did 30 years ago, and when changing jobs they are often tempted to cash out their retirement savings. This “non-preservation” of retirement savings can have a devastating impact on your replacement ratio as it means you are effectively resetting your contribution period to zero. There are also significant tax implications to consider. For more on this, see the article on “How early withdrawals affect your retirement benefits”.

Annuity factors

The price of the annuity that you are able to purchase at retirement has a big impact on your replacement ratio. As you head towards retirement, changes outside of your control (such as how long people live, what the interest rate is, etc) will affect the pricing of annuities. It is important to keep abreast of such changes as early interventions can have a marked impact later.

Salary progression

Your salary forms part of the equation that determines your replacement ratio. The higher your salary, the more you will need to save to replace it at retirement. Aim to keep your monthly savings contribution amount as a set percentage of your salary to ensure your savings keep up with any earnings increases.

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