Masegomotso Ramalosa, Consultant at Sygnia Umbrella Retirement Fund
Retirement planning in South Africa is not easy. Rising inflation, stagnating salaries and soaring medical aid costs make financial freedom seem out of reach to many. Add the uncertainty of the National Health Insurance (NHI) scheme and planning for retirement can feel like trying to stop a wildfire. But South Africans can take control of their financial future with the right strategies, learning from past mistakes and leveraging new frameworks and tools to build lasting wealth.
Many South Africans struggle to save adequately for retirement, with only a small fraction able to sustain their lifestyles after they retire. Economic pressures, including inflation, mean that the average retiree replaces only a portion of their final salary – much less than is needed to maintain their standard of living. In addition, many fund members cash out their accessible retirement savings when changing jobs, leaving them financially exposed later in life. Medical aid costs and the uncertainty of the NHI add further complexity, threatening even well-laid plans.
Medical aid premiums are rising rapidly, often outpacing inflation. For retirees, healthcare can consume a large portion of income, especially as health needs grow with age. Gap cover is intended to bridge shortfalls in medical aid but adds another expense. Meanwhile, the NHI, still years from full implementation, promises universal healthcare but offers no clarity on costs and coverage. Retirees could find themselves caught between expensive private medical aid and an untested public system.
Lessons from past generations
Past mistakes offer valuable guidance. Cashing out retirement savings early drastically reduces long-term savings, while many people stick with low-growth investments and save far less than recommended. Financial literacy is often low and many members do not understand the importance of investment fees, while others underestimate healthcare costs and assume medical aid will cover everything.
Despite these challenges, South Africans can take proactive steps to secure a financially comfortable retirement:
1. Start early and save aggressively
Time is your greatest ally. Consistent saving from a young age, even at moderate rates, can grow substantially over decades. Retirement calculators and projection tools help you set realistic savings targets by factoring in inflation, investment returns, and healthcare costs.
2. Use the two-pot system
The two-pot retirement system separates contributions into an accessible savings pot and a locked retirement pot. This discourages early withdrawals and helps preserve funds for retirement, including for medical expenses.
3. Take advantage of benefit counselling
Since March 2019, retirement funds have been required to offer benefit counselling to members. This service provides clear, unbiased guidance on retirement savings, job changes and group risk benefits. It helps members avoid costly mistakes, like cashing out savings too early, and better understand how to balance retirement contributions with healthcare planning.
4. Diversify investments
A balanced portfolio that mixes local and international equities, bonds and property protects against inflation and currency fluctuations. Growth-focused investments earlier in life can shift to more conservative assets closer to retirement to maximise long-term returns.
5. Plan for healthcare costs
Consider hospital plans with lower premiums, supplemented with gap cover if necessary. Establish a separate healthcare fund to cover post-retirement medical expenses, ensuring it grows with inflation. While NHI may eventually reduce private medical costs, independent planning remains essential.
6. Be tax-savvy
Contributions to retirement funds and tax-free savings accounts can reduce your tax liabilities, leaving more for retirement and medical needs. Thoughtful withdrawal strategies at retirement can further minimise tax exposure.
7. Seek professional guidance
A financial advisor can provide tailored strategies, particularly around medical costs, investment growth and retirement timing.
Rethinking retirement age and risk cover
The traditional retirement age of 60 is increasingly out of sync with financial realities. Many may need to work longer to achieve financial security, especially with rising healthcare costs. Flexible retirement ages, lower normal retirement thresholds and extended group risk policies for older workers could alleviate financial pressure, allowing people to retire in better health and with greater peace of mind.
Until the impact of the NHI becomes clearer, a diversified approach is key. Maintain private or hospital plans while saving in a dedicated healthcare fund. Staying informed and advocating for flexible retirement contributions can help mitigate the risks of rising medical costs.
And finally, as we approach the festive season, many employees will be receiving bonuses or thirteenth cheques. While it is natural to allocate some of this “extra cash” to clothes, holidays or Christmas presents, it is equally important to think long term. Consider apportioning part of your bonus as an additional voluntary contribution (AVC) to your retirement savings.
Using each annual bonus as an opportunity to boost your retirement fund can have a remarkable impact on your eventual retirement outcome. Small, consistent additions made today can grow significantly over time, ensuring that your future self, benefits from the financial discipline you show today.
The path to a wealthy retirement
Retiring rich on a rand requires discipline and foresight. Start saving early, make use of the two-pot system and take advantage of benefit counselling to understand your retirement benefits. Look to diversify your investments, plan for healthcare costs and avoid the pitfalls of early withdrawals or under-saving.
Adopting smart strategies and intentional financial habits, even during the festive season, South Africans can turn economic challenges into opportunities, building a retirement that is both secure and abundant.
ENDS
