Think you’ll retire at 65? 80 is SA’s real retirement age

Most of us think we’ll retire at 65. However, the reality is quite different.

According to Sanlam Corporate’s internal member data, South Africa’s true retirement age – the age at which most citizens can afford to retire comfortably – is closer to 80.

Kanyisa Mkhize, chief executive officer of Sanlam Corporate, calls for collaboration among the country's corporates, financial institutions, and other stakeholders in the retirement funding industry to create a more sustainable working environment where more South Africans can retire comfortably.

“Our internal member data indicates that while 65 remains the official retirement age, the majority of South Africans cannot afford to retire at this age. Most people will need to work an additional 15 years to achieve financial security in retirement.

"This 15-year gap represents a financial challenge and a fundamental shift in how we think about retirement planning and employee benefits in South Africa. This gap between expectation and reality presents significant challenges for individuals, businesses, and the broader economy. It also highlights the critical role that holistic benefits will play in shaping a more secure future for our workforce."

The numbers behind the new retirement age

Sanlam Corporate’s insights are based on over 300,000 Sanlam Umbrella Fund members, demographic trends, actuarial data, and economic factors affecting the country’s retirement outcomes.

Based on this data, the average South African is expected to achieve a 25% replacement ratio (the percentage of the final working salary they'll receive as retirement income) at the traditional retirement age of 65. This is significantly below the industry benchmark of 75% required for a comfortable retirement.

Sanlam Corporate’s internal analysis assumes:

Projected investment returns at 9.25% per annum, based on a moderately balanced portfolio benchmark.
Estimated Inflation and salary escalation rates at 5.25% per annum, aligned with the Reserve Bank's mandate.
A 35-year savings term, acknowledging that many South Africans face delayed entry into permanent employment.
An initial working age of 30 years.

What this new retirement age means for SA

For individuals: The extended working years have profound implications for personal financial planning and career development. Workers must now consider strategies for maintaining employability well into their seventies while managing health and skill development to remain competitive in the job market.

For companies: Employers face complex challenges in managing an ageing workforce while balancing transformation objectives. Sanlam Corporate’s member data highlights the tensions between retaining experienced older workers and creating opportunities for younger employees in a country with high youth unemployment and one of the world’s highest youth populations.
With almost 60% of South Africans under 25, according to Stats SA, young South Africans have even more competition for jobs.

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For the state: The data highlights critical implications for social policy and welfare systems in South Africa. The old age pension means test, designed to assess financial hardship among older citizens, presents a challenging paradox.
On the one hand, individuals with preserved retirement funds may be disqualified from accessing state support. On the other hand, these same funds are often inadequate to ensure a comfortable and secure retirement, leaving many caught in a financial grey area. This underscores the urgent need for a more balanced retirement savings and state assistance approach.

Bridging the gap with holistic solutions

Mkhize recommends several interventions South African corporates can take to address this retirement age gap, including:

Life-cycle contribution options: Implementing automatically escalating contribution rates that align with annual salary increases represents a powerful tool for improving retirement outcomes.
When contribution increases coincide with salary adjustments, employees are less likely to feel the impact on their take-home pay. This approach addresses one of the crucial challenges in retirement saving – many members never revise their contribution rates over their entire savings career. By automating these increases, members can boost their savings without facing difficult decisions about reducing their current standard of living.

Enhanced employer-matching programmes: Expanding and optimising employer-matching contributions can significantly accelerate retirement savings accumulation. When employers increase their matching thresholds or introduce more generous matching ratios, employees are incentivised to save more while effectively receiving additional compensation through retirement contributions.
This approach aligns the interests of employers and employees while leveraging tax advantages available through retirement savings vehicles.

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Access to financial advice, planning tools, and financial education: Making professional financial advice more readily available to all employees, coupled with a solid foundation of financial education, can help employees optimise their investment choices, adjust contributions appropriately, and maintain a long-term perspective on their retirement planning.
This includes usage of digital planning tools to help employees understand their retirement trajectory and make informed decisions.

“We have a responsibility to help South Africans retire with dignity, not decades past their prime," says Mkhize. This requires a co-ordinated effort from all stakeholders.

"This is not just about individual savings behaviour. It's about creating a sustainable system that works for all South Africans across generations. While the 80-year retirement age represents a challenging reality, it also presents an opportunity for innovation in our approach to work, savings, and retirement planning.