Retirement planning in South Africa has become increasingly difficult, but it is not impossible for those who start early and make informed decisions to retire comfortably.
Masegomotso Ramalosa, consultant at Sygnia Umbrella Retirement Fund, noted that retirement planning in South Africa is not easy amid rising inflation, stagnant salaries, and increasing medical aid costs.
The uncertainty around the National Health Insurance (NHI) adds to the difficulty. Despite this, she said South Africans can take control of their financial future with discipline and planning.
The majority of South Africans do not save enough for retirement. Ramalosa explained that only a small fraction of South Africans are able to sustain their lifestyles after they retire.
Most retirees replace only a portion of their final salary, which is not enough to maintain their standard of living.
Cashing out retirement savings when changing jobs makes the problem worse, leaving people financially vulnerable later in life.
Additionally, medical aid premiums often rise faster than inflation, and for retirees, healthcare can take up a large portion of income.
Gap cover may help, but it adds extra cost. The NHI promises universal healthcare but is still years away and offers little clarity on costs and coverage.
As a result, Ramalosa stressed that retirees could find themselves caught between expensive private medical aid and an untested public system.
Cashing out retirement savings early, sticking to low-growth investments, and underestimating healthcare costs are also common mistakes.
Ramalosa noted that many people do not understand the impact of investment fees or the importance of long-term planning.
There are steps South Africans can take to improve their retirement prospects. The first and easiest step is to start saving early and consistently. “Time is your greatest ally,” Ramalosa said.
Even moderate contributions can grow significantly over decades. Tools like retirement calculators help set realistic savings goals by accounting for inflation, investment returns, and healthcare costs.
Investment strategy is key
The two-pot retirement system can also help. It separates contributions into an accessible savings pot and a locked retirement pot, discouraging early withdrawals and preserving funds for retirement.
Ramalosa highlighted that this system helps preserve money that many workers would otherwise spend before retirement.
Benefit counselling, which retirement funds have offered since 2019, is another useful tool. It provides unbiased guidance on retirement savings, job changes, and group risk benefits.
Ramalosa explained that benefit counselling helps members avoid costly mistakes and better understand their retirement options.
An investment strategy is also very important. A diversified portfolio across local and international equities, bonds, and property protects against inflation and currency changes.
Younger savers can take more risk, while older savers should move to safer investments. Planning for healthcare costs through hospital plans, gap cover, and a dedicated healthcare fund is also essential.
“Independent planning remains essential,” Ramalosa said, even with the NHI on the horizon.
Tax-efficient saving can boost retirement wealth. Contributions to retirement funds and tax-free savings accounts reduce tax liabilities.
Thoughtful withdrawal strategies at retirement can further stretch income. Many people may need to work longer than the traditional retirement age of 60 to achieve financial security.
Flexible retirement ages and extended benefits for older workers can ease pressure and allow healthier, more secure retirements.
Ramalosa also advised using bonuses wisely. “Small, consistent additions made today can grow significantly over time,” she said.
Instead of spending the entire bonus on short-term expenses, contributing part of it to retirement savings can make a meaningful difference over the long term.
Retiring comfortably in South Africa requires planning, discipline, and informed decision-making.
By starting early, using tools like the two-pot system and benefit counselling, diversifying investments, preparing for healthcare costs, and avoiding early withdrawals, South Africans can build a financially secure retirement.
“With intentional habits, even during the holiday season, it is possible to retire rich on a rand,” said Ramalosa.
Source: BusinessTech
