Rethinking Retirement in South Africa: Why a Phased Approach Matters
Traditional retirement planning in South Africa treats retirement as a “hard stop.” You accumulate until a certain age, enjoy your retirement party, and then live off your nest egg. But with average life expectancy north of 67 years – and many of our citizens living well into their 80s and beyond – this model is rapidly losing its footing.
Rising healthcare costs, extended family obligations, and an inflated life expectancy demand we rethink retirement as a gradual glide-path rather than a single leap.
For the modern South African, “retirement planning” can no longer be boxed into a binary save-then-cease-work model.
Living Longer
While our increase in life expectancy is a triumph of public health, it brings new pressures. The traditional idea of funding a 20-30 year retirement without active income is, for many, no longer feasible. That’s especially true in a country where household savings rates remain low and unemployment remains high.
Advisers are seeing this reality first-hand. Clients are asking, “Can I really afford to stop working completely?” Often, the answer is no – not just for financial reasons, but also for psychological and social ones.
Health is Wealth, But it’s Also an Expense
While some South Africans are covered by private medical aid, many rely on a public system to address health concerns. Ageing brings higher medical needs ranging from chronic conditions to long-term care, and these are seldom fully accounted for in traditional retirement planning.
Beyond the cost of medicine or hospitalisation, there’s the issue of quality of life. Remaining active and engaged in meaningful work, even part-time or on a freelance basis, has been shown to support mental and physical well-being.
Phased Retirement
And so, instead of an outdated sharp break, individuals are increasingly reducing their hours, shifting to consultancy roles, or starting small businesses as they grow older than 60. This strategy allows income to continue flowing while also drawing down savings more slowly. Many retirees also continue to financially support children, grandchildren and even siblings, which often stretches retirement resources thin, making it essential for many to find ways to preserve their earning potential for longer.
Empowering Clients with a Phased Decumulation Plan
Rather than setting a single retirement date, we can empower clients to choose a more sustainable and effective staged model that aligns asset allocation and income generation to their evolving needs and life phase.
During their pre-retirement years, as their full-time or typical working years draw to a close, clients aged 55 should shift their focus from growing savings to protecting what they’ve built and preparing for regular income withdrawals.
As industry players, we can advocate for moving some of their growth investments into more balanced, moderate-risk portfolios that mix shares, bonds and cash to help protect their funds from market volatility in the short to medium term. It is also recommended that they set aside enough in short-term, low-risk investments, such as money-market funds or short-dated bonds, to cover three to five years of living expenses. This “cash ladder” means they won’t have to sell other investments at a loss if markets dip. An individual consultation is always prudent as investing is never a one-size-fits-all approach.
As clients begin to reduce working hours or move into consultancy roles from ages 60 to 65, they will need a reliable income stream but will still want growth potential. One way they can accomplish those goals is by dividing their savings into three “buckets” based on when they’ll use the money.
For example, one “bucket’ can focus on the short term, with cash and high-quality fixed-income funds to cover immediate expenses. Another “bucket” can focus on the medium term, with a balanced portfolio with a mix of local and offshore shares and bonds to keep pace with inflation. Finally, a long-term bucket can prioritise higher-equity funds or property to ensure their money can last into very late retirement.
In advanced retirement, most clients’ downward risk has been managed, and they can shift remaining funds into solutions that guarantee income for life. Retirees can consider transferring leftover savings into deferred annuities that start paying out later, for example, at 80, to cover the risk of outliving their capital.
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Encouraging clients to think through their retirement planning in terms of pre-retirement, active retirement, and assisted retirement will help your clients live out better quality lives during their sunset years.
Retirement is no longer the finish line that it once was, but rather a spectrum that needs to be carefully planned for. We can, and should, help make those plans responsibly.