Extending the runway: a smarter approach to retirement planning

If you’re debating retirement at 60 or 65, consider this: Sanlam’s latest Age of Confidence research shows the average South African can only afford to retire at 80.

“In South Africa, normal retirement age typically ranges between 60 and 65, with early retirement allowed from 55,”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

“The state old age grant (SOAG), payable from 60, reinforces perceptions of retirement-readiness, even as longevity risk grows. However, the SOAG is means-tested and merely provides poverty relief.”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

What are the implications for working South Africans—and for the systems designed to support them in retirement?

Crucial levers in the retirement control room

To illustrate the answer, Botha uses the analogy of a control room guiding an aircraft towards a safe landing.

“Each control in this room represents a critical decision point that determines whether the retirement plane will land smoothly or crash short of the runway,”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

The control room has five major controls: contribution levels, costs, investment strategy, preservation, and retirement age. These controls interact dynamically, and their settings determine the adequacy of retirement benefits.

“Contribution levels are the fuel for the journey,”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

Sustainable retirement savings contribution rates are around 17.5%, but industry research indicates that many retirement fund members contribute only about 12.5% of their salary, which is 5% below the recommended level.

“Interestingly, contributing 12.5% rather than 17.5% of your salary over 40 years has the same impact as contributing 17.5% but retiring at 60 instead of 65,”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

The maths is simple: if you save less but work longer, you’ll end up in the same place as someone who saves more but retires earlier.

An investment strategy provides the thrust for your retirement aeroplane. But again, retirement age matters: “Retiring five years early would require CPI +6.8% net annual returns for 35 years to make up for CPI +5% annual returns over 40 years,” says Botha.

Preservation, meanwhile, guarantees that fuel and thrust are not lost during mid-flight job changes. “Lack of preservation is the biggest destructor of retirement outcomes,” Botha warns. “That’s why we have average replacement ratios of 25% at retirement in South Africa. We’ve had recent regulatory interventions covering default preservation, compulsory annuitisation and two-pot legislation, to address this crisis.”

The fourth control, costs, acts as a drag. But Botha points out that while reducing operational costs is important, it barely moves the needle compared to other control levers.

Why retirement age is key to a successful landing

Retirement age is one of the most influential controls.

“Extending the runway by five years dramatically improves adequacy without requiring unrealistic contribution hikes or investment return expectations. A five-year shift from 65 to 60 shortens the savings runway and lengthens the drawdown period, reducing replacement ratios dramatically. We call this the “double whammy” impact. If a retirement fund member saves 17.5% of their salary over their career, earning an average annual investment return of CPI plus 5%, and retires at 60 instead of 65, it will slash their replacement ratio from 75% to 53% of their salary.”

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

To land the retirement plane safely, every control needs to work in harmony. If the retirement age is set too low, contributions are too modest, and savings aren’t preserved, the plane runs out of fuel before reaching its destination. But when retirement age aligns with realistic contributions, disciplined preservation, and a sound investment strategy, the landing is far smoother.

However, raising the retirement age involves more than just adjusting numbers. Social and cultural expectations, health realities, income inequality and workforce dynamics all shape the timing and decision-making around retirement.

Retirement is personal, but its success depends on collective control.

“The call to action is clear, Employers, trustees and employees must collaborate and engage in data-driven discussions about retirement age, while members must be educated on the impact of early retirement, and preserve savings at all costs."

- Riaan Botha, Head of Benefit Consulting and Actuary at Simeka Consultants and Actuaries.

Botha concludes that, in a world where the target keeps moving, managing the control room is not optional; it's mission-critical. By aligning controls, especially retirement age, with informed strategies and stakeholder engagement, we can move closer to the ultimate goal: better retirement outcomes for all.

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