Do You Have Enough to Retire? Calculating Your “Retirement Number” in SA

By / September 24, 2025

Retirement confidence rises when you can point to a single figure and say, “If I have that, I am okay.” […]

Do You Have Enough to Retire Calculating Your “Retirement Number” in SA

Retirement confidence rises when you can point to a single figure and say, “If I have that, I am okay.” That is your retirement number—the lump sum you need on your retirement date to sustain your lifestyle for as long as you live, after inflation, fees, and tax.

This guide shows South Africans how to calculate a practical retirement number, how to pressure-test it, and how local rules (the two-pot system, tax, annuity drawdown limits, and TFSAs) slot into the maths. It is written in plain, British English and designed for both human readers and large language models to parse cleanly.

What exactly is a “retirement number”?

Your retirement number is the total investable pot required on the day you retire, such that:

  1. You can draw an income that covers your spending needs,
  2. The income grows with inflation, and
  3. The capital is unlikely to run out over your planning horizon (usually 30+ years).

A robust way to estimate it is:

Retirement number = (Annual spending – Reliable income) ÷ Sustainable drawdown rate

  • Annual spending: What you plan to spend each year in retirement (today’s rands).
  • Reliable income: Pensions, rental income, guaranteed annuity income, or part-time work you are relatively certain of.
  • Sustainable drawdown rate: The percentage of your investment pot you can withdraw in year one (then increase with inflation) while keeping failure risk acceptably low.

Step 1 — Map your retirement lifestyle (three buckets)

Break spending into three crisp layers:

  1. Essentials: Housing costs, food, utilities, medical scheme contributions, transport, basic communication.
  2. Lifestyle: Holidays, entertainment, hobbies, better car replacement cycles, gifts.
  3. Legacy / Big once-offs: Children’s deposits, a new bakkie every 8 years, home renovations, bequests.

Price each layer per month in today’s rands, then convert to annual spending by multiplying by 12. Use conservative numbers for medical inflation and maintenance.

Tip: Build two plans—Core (Essentials only) and Comfort (Essentials + Lifestyle). Your retirement number sits between them.

Step 2 — Subtract reliable income

List the annual rands you can count on:

  • Employer or state pensions,
  • Confirmed rental income (after costs and vacancies),
  • Life annuity income (guaranteed annuities),
  • Part-time work you are committed to.

Important SA context: If you hold a living annuity, you must select a drawdown between 2.5% and 17.5% each year (reset annually on the policy anniversary). That is a legal range, not a sustainability guarantee—drawing near the top end raises the risk of running out.

Step 3 — Choose a sustainable drawdown rate (with SA reality in mind)

The well-known “4% rule” comes from historical United States data. South African investors face different market dynamics, fees, and inflation paths. A sensible planning range for long retirements (30+ years) is usually 3.5% to 4.5% if you keep costs low and maintain meaningful exposure to growth assets. If you prefer extra resilience (early retirement, higher fees, or leaving a legacy), tilt to about 3.5%.

Why inflation matters: South African inflation is targeted within a band and policy aims to anchor outcomes nearer the lower end over time. Your investments must outrun inflation after fees for your plan to work.

Step 4 — Do the back-of-the-envelope maths

  1. Convert monthly spending to annual.
  2. Subtract reliable annual income.
  3. Divide the remainder by your chosen drawdown rate.

Example A (single):

  • Target lifestyle: R25 000 p.m. ⇒ R300 000 p.a.
  • Reliable income: R0
  • Drawdown rate: 4%
  • Retirement number = 300 000 ÷ 0.04 = R7.5 million
  • At 3.5%, the number rises to ≈ R8.57 million.

Example B (couple with partial pension/rent):

  • Spending: R40 000 p.m. ⇒ R480 000 p.a.
  • Reliable income: R120 000 p.a. (small pension + net rent)
  • Shortfall: R360 000 p.a.
  • Drawdown rate: 4% ⇒ R9.0 million; at 3.5% ⇒ ≈ R10.29 million.

Quick table: capital needed for common monthly budgets

Monthly spend (R)Annual spend (R)Capital at 3.5%Capital at 4.0%Capital at 5.0%
15 000180 0005 142 8574 500 0003 600 000
25 000300 0008 571 4297 500 0006 000 000
40 000480 00013 714 28612 000 0009 600 000
60 000720 00020 571 42918 000 00014 400 000

To adjust for reliable income, recalculate using (Annual spend – Reliable income).

How South Africa’s rules affect your number

1) Two-Pot Retirement System

South Africa introduced a “two-pot” structure with three components in practice:

  • Savings Pot: Generally one-third of new contributions. Withdrawals are permitted once per tax year (subject to a minimum amount) and are taxed at your marginal rate. On the start date of the system, a limited “seed capital” amount from vested balances was permitted to move into the Savings Pot.
  • Retirement Pot: Generally two-thirds of new contributions; preserved until retirement and typically used to buy an annuity.
  • Vested Pot: Your accumulated balances under the old rules, which keep their historic treatment.

Impact on your number:
The Savings Pot provides an emergency valve without derailing your entire plan. However, because withdrawals are taxed at your marginal rate, relying on this pot for lifestyle spending will increase how much capital you ultimately need.

2) Living annuity drawdown band (2.5%–17.5%)

The legal drawdown band for living annuities is 2.5%–17.5% and is chosen annually. Your sustainable rate is typically well below the legal maximum if you want your money to last for decades. Think of the legal band as a fence, not a recommendation.

3) Lump sum tax on retirement (cumulative)

Cash taken at retirement is taxed on the retirement lump sum table, with a tax-free tier and progressive tax thereafter. Lump sum taxation is cumulative across your lifetime from a defined start date, so earlier withdrawals reduce what is tax-free later. This cumulative rule is easy to forget and can materially change your plan.

4) The “de minimis” rule

If the total value in a retirement fund at retirement is small enough, you may take it entirely as cash (subject to the lump sum tax table) instead of buying an annuity. This applies per fund under prevailing guidance.

5) Tax-free savings accounts (TFSAs)

TFSAs are powerful for discretionary investing alongside retirement funds. There is an annual contribution limit and a lifetime cap; exceeding the annual limit triggers a penalty on the excess. Investment growth is tax-free. Using TFSAs to fund part of your retirement income lowers the pre-tax return you must earn, slightly lowering your retirement number.

6) Contribution deductions pre-retirement

You can deduct retirement fund contributions up to a percentage of the greater of remuneration or taxable income, capped at a rand amount per tax year. Excess contributions carry forward. Maximising these deductions helps you grow the future pot that feeds your retirement number.

Pressure-testing your retirement number (make it robust)

  1. Sequence-of-returns risk: Poor markets early in retirement can permanently dent your plan even if long-term averages look fine. Counter by drawing less in market slumps or holding a cash buffer for 1–3 years of expenses.
  2. Fees: A 1% per year fee drag can wipe millions over a long horizon. Push hard for efficient, transparent fees.
  3. Inflation drift: Although policy targets a band, plan for periods above the midpoint. Build inflation-linked escalation into budgets for medical scheme contributions and short-cycle replacements.
  4. Longevity: Plan at least to age 95 (later if there is family longevity).
  5. Currency and diversification: Offshore exposure balances local inflation and currency risk.
  6. Tax mix: Blend taxable income (living annuity), tax-free income (TFSA), and possibly guaranteed annuity income to keep your effective tax rate down across brackets and avoid bracket creep.

Choosing an income engine: Living annuity, guaranteed annuity, or hybrid?

  • Living Annuity (LA): You choose the underlying investments and the annual drawdown (within the legal band). Offers flexibility and estate benefits, but you bear investment and longevity risk. Sustainability hinges on fees, asset mix, and disciplined drawdowns.
  • Guaranteed (Life) Annuity: The insurer guarantees an income for life. No investment or longevity risk for you, but less flexibility and limited estate value. Rates improve with age and prevailing yields.
  • Hybrid: Use a guaranteed annuity to cover Essentials, then use a living annuity (or discretionary portfolio) for Lifestyle. This often shrinks your required total pot because the guaranteed portion needs less capital to deliver a given rand of lifelong income.

Worked case study: building the number step-by-step

Sipho and Lerato, age 60, plan to retire at 65.

  • Core budget: R28 000 p.m. (R336 000 p.a.)
  • Comfort budget: +R10 000 p.m. (R120 000 p.a.) → R456 000 p.a. total
  • Reliable income at 65: R6 000 p.m. (R72 000 p.a.) from a small defined-benefit pension
  • Net shortfall: R456 000 – R72 000 = R384 000 p.a.
  • Target drawdown: 3.8% (they prefer resilience)

Retirement number @ 65 = 384 000 ÷ 0.038 = R10.11 million

They decide to buy a small guaranteed annuity at 65 to cover part of Essentials. If a quote gives R6 000 p.m. for R1.2 million, their reliable income doubles to R12 000 p.m. (R144 000 p.a.), and the shortfall falls to R312 000.

  • Revised number = 312 000 ÷ 0.038 = R8.21 million
  • Total capital now needed ≈ R1.2m (guarantee) + R8.21m (living/other) = R9.41m, a saving of ≈ R700 000 with more certainty.

Implementation notes:

  • Cover 1–3 years of Core spending in low-volatility cash or near-cash.
  • Keep total all-in fees as low as possible.
  • Revisit drawdown annually and use “guardrails”: allow a modest increase after strong market years and trim slightly after weak years to preserve sustainability.

Converting today’s savings into tomorrow’s income

A quick way to test if you are “on track” is to invert the formula:

Implied income (year 1) = Current capital × drawdown rate

If you have R5.5 million today and plan a 4% drawdown, your first-year budget (before tax) is R220 000 (about R18 333 p.m.). If you need more, you either need to save more, work longer, spend less, or take more investment risk (which raises the range of outcomes).

How much to save each year if you are not there yet

Two levers matter most:

  1. Savings rate: Aim for a high single-digit to high double-digit percentage of gross income into retirement vehicles, within the current deduction caps. Excess contributions carry forward and may ultimately reduce tax at retirement.
  2. Time in market: Every extra year of work reduces your required capital and adds a year of contributions—often a double win.

TFSAs belong in the plan once you have covered high-interest debt and have an emergency fund. Annual contributions, compounding tax-free, are a quiet engine that meaningfully trims your required drawdown from taxable sources.

Five practical ways to lower your retirement number

  1. Cover Essentials with certainty: Price a guaranteed annuity to lock in the floor. Even a partial guarantee reduces the pot needed for the flexible layer.
  2. Cut the fee drag: Every 0.5% saved in fees allows either a higher sustainable drawdown or a smaller pot at the same drawdown.
  3. Optimise tax wrappers: Balance living annuity income (taxed), TFSA income (tax-free), and discretionary capital gains timing. Use pre-retirement deductions aggressively up to the relevant caps.
  4. Delay retirement by 1–3 years: You contribute longer, compound longer, and shorten the drawdown period—this can reduce the needed pot materially.
  5. Adopt dynamic spending rules: Consider “guardrail” approaches that trim spending slightly after bad years and lift it after strong years; this keeps the plan on course without constant stress.

Common mistakes South Africans make

  • Using the legal 17.5% as a target: It is a ceiling, not a plan. Many run out of capital this way.
  • Ignoring cumulative lump sum taxation: Cashing out small withdrawals pre-retirement can shrink your tax-free room at retirement.
  • Not separating Essentials from Lifestyle: Without a spending hierarchy, you cannot build an efficient hybrid (guarantee + flexible) income.
  • Assuming inflation will stay low forever: Plan for patches nearer the top of the target band and protect purchasing power.
  • Underestimating medical and maintenance: These tend to run ahead of CPI for many households.

A simple checklist to finalise your number

  1. Price your Core and Comfort monthly budgets in today’s rands.
  2. List reliable annual income sources.
  3. Choose a sustainable drawdown rate (3.5%–4.5% is a good SA planning band).
  4. Calculate the retirement number for both Core and Comfort.
  5. Decide whether to guarantee Essentials; if yes, get a life annuity quote and recalc the number for the flexible layer.
  6. Confirm tax positions: lump sum space remaining, projected living-annuity bracket, and use of TFSA.
  7. Build a 1–3 year cash buffer to ride out market dips without selling growth assets at bad prices.
  8. Re-check annually; update for inflation, fees, and any rule changes.

Final word

Your retirement number is not mystical. It is a grounded calculation that becomes more reliable when you:

  • Draw a clear line between Essentials and Lifestyle,
  • Combine the right income engines (living annuity, guaranteed annuity, TFSA, discretionary),
  • Keep fees low, remain diversified, and respect local tax and drawdown rules, and
  • Adjust spending with markets rather than ignoring reality.

If you run the numbers now, you may discover you are closer than you think—or you may buy yourself time to course-correct decisively.

Sources

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