Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries
Thinking of taking an early retirement? Think again. The question is less about when you want to retire or when you are allowed to retire, and more about when you can afford to retire.
And if you’re weighing up whether to retire at age 60 or 65, consider this: according to Sanlam’s recent Age of Confidence research, the actual average age at which South Africans can afford to retire is 80.
“In South Africa, normal retirement age typically ranges between 60 and 65, with early retirement allowed from 55,” says Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries. “The state old age grant (SOAG), payable from 60, reinforces perceptions of retirement-readiness, even as longevity risk grows. However, the SOAG is means-tested and merely provides poverty relief.”
What does this mean for working South Africans and for the system that supports them when they retire?
Crucial levers in the retirement control room
To illustrate the answer, Botha uses the analogy of a control room guiding an aircraft towards a safe landing. “Each control in this room represents a critical decision point that determines whether the retirement plane will land smoothly or crash short of the runway,” he says.
The control room has five major controls: contribution levels, costs, investment strategy, preservation, and retirement age. These controls interact dynamically, and their settings determine the adequacy of retirement benefits.
“Contribution levels are the fuel for the journey,” says Botha. Retirement saving contribution rates that are considered sustainable are around 17.5%, but industry research indicates that many retirement fund members actually contribute only about 12.5% of their salary, which is 5% less than the recommended level.
“Interestingly, contributing 12.5% rather than 17.5% of your salary over 40 years has the same impact as contributing 17.5% but retiring at 60 instead of 65,” he says. The maths is simple: if you save less but work longer, you’ll be in the same place as someone who saves more but retires sooner.
Investment strategy provides the thrust for your retirement airplane. But again, retirement age matters: “Retiring five years early would require CPI +6.8% net annual returns for 35 years to make up for CPI +5% annual returns over 40 years,” says Botha.
Preservation, meanwhile, ensures that fuel and thrust aren’t lost during mid-flight job changes. “Lack of preservation is the biggest destructor of retirement outcomes,” Botha warns. “That’s why we have average replacement ratios of 25% at retirement in South Africa. We’ve had recent regulatory interventions covering default preservation, compulsory annuitisation and two-pot legislation, to address this crisis.”
The fourth control, costs, acts as a drag. But Botha points out that while reducing operational cost is important, it barely moves the needle compared to other control levers.
Why retirement age is key to a successful landing
Retirement age is one of the most influential controls. “Extending the runway by five years dramatically improves adequacy without requiring unrealistic contribution hikes or investment return expectations,” Botha says. “A five-year shift from 65 to 60 shortens the savings runway and lengthens the drawdown period, reducing replacement ratios dramatically. We call this the “double whammy” impact. If a retirement fund member saves 17.5% of their salary over their career, earning an average annual investment return of CPI plus 5%, and retires at 60 instead of 65, it will slash their replacement ratio from 75% to 53% of their salary.”
To land the retirement plane successfully, all controls must work in harmony. If retirement age is set too low, contribution levels are too modest, and benefits are not preserved, the plane runs out of fuel before reaching its destination. However, if retirement age is aligned with realistic contribution rates, disciplined preservation, and a sound investment strategy, the landing will be smooth.
However, raising the retirement age involves more than just adjusting numbers. Social and cultural expectations, health realities, income inequality and workforce dynamics all shape the timing and decision-making around retirement.
Retirement is personal, but its success depends on collective control. “The call to action is clear,” says Botha. “Employers, trustees and employees must collaborate and engage in data-driven discussions about retirement age, while members must be educated on the impact of early retirement, and preserve savings at all costs.
“In a world where the target keeps moving, managing the control room is not optional – it is mission critical,” Botha concludes. “By aligning controls, especially retirement age, with informed strategies and stakeholder engagement, we can move closer to the ultimate goal: better retirement outcomes for all.”
At Simeka Consultants and Actuaries, we take pride in designing purpose-driven consulting and advisory solutions tailored to our clients’ unique needs. Our commitment to customised employee benefits ensures that those we serve are consistently supported with care, expertise and strategic insight.
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