How Much Do You Really Need to Retire: ? A Practical Framework for South Africans (2026)

Start With Income, Not Capital

Retirement doesn’t cost a capital figure. It costs a monthly income, sustained over many years. The question “how much capital do I need?” is only answerable once a more fundamental question has been answered first: how much income do I need, after tax, to live the life I want in retirement?

That income target is personal. It might be R35,000 per month for one household, R60,000 for another, and R120,000 for a third. What it cannot be is vague — because everything that follows in retirement planning flows from this number. Capital is the engine; income is the destination.

Why Replacement Ratios Are a Starting Point, Not a Plan

The retirement industry has long used the concept of a replacement ratio — typically around 75% of final pre-retirement income — as a shorthand for how much income you’ll need. It can be a useful orientation point early in the accumulation phase when building a target to aim for. It breaks down in practice for several reasons.

Spending patterns change significantly in retirement. Early retirement years — typically the most active — often involve more travel, leisure, and discretionary spending than the working years. Later years shift toward healthcare, support services, and care costs. The 75% figure captures neither phase particularly well. High earners often find they need less than 75% because a significant proportion of working income went to saving, tax, and career-related expenses that fall away. Middle earners frequently need more, particularly when medical aid premiums and out-of-pocket healthcare costs are modelled properly over 25–30 years.

A more reliable approach is to build a realistic retirement budget from the ground up — what you actually spend now, adjusted for what changes, stress-tested for inflation over time. It takes longer than applying a percentage. It’s also materially more accurate.

Drawdown Rates: Why This Decision Matters Most

Once your income requirement is clear, the drawdown rate determines how much capital is needed to support it. This is one of the most consequential decisions in retirement planning — and one of the most consistently underestimated.

As a broad guide, the following starting drawdown rates are generally considered sustainable over long retirements, assuming a well-constructed growth-oriented portfolio:

Higher drawdowns are possible — the FSCA permits up to 17.5% per year from a living annuity — but above approximately 6%, the probability of capital depletion within a 25-year retirement increases substantially, particularly if early retirement years coincide with poor market returns.

The Sequence-of-Returns Problem

The first decade of retirement is disproportionately important. If markets deliver poor returns in years one through five while you are simultaneously drawing income, you are selling assets at depressed prices — permanently reducing the capital base that needs to fund the remaining 20–30 years. This is sequence-of-returns risk, and it is one of the strongest arguments for conservative starting drawdown rates and maintaining a cash buffer in the early retirement years.

A retirement plan that looks sustainable at an 8% average return assumption can fail at a 6% return if the sequencing is unfavourable. The average matters less than the path.

Investment Returns: Small Differences, Large Consequences

Over a 25–30 year retirement, small differences in annualised real return translate into enormous differences in capital sustainability. The mathematics are unforgiving in both directions — a portfolio delivering CPI+5% per year supports a very different retirement than one delivering CPI+3%, even if neither figure sounds dramatically different.

Long-term real return expectations for different portfolio types, as a rough guide:

• CPI+2–3%: Conservative — heavy in cash, bonds, and income assets. Capital preservation focus. Likely insufficient to sustain even modest drawdowns over 30 years without capital erosion.
• CPI+4–5%: Balanced with growth bias — meaningful equity exposure, diversified locally and offshore. The return range required to sustain 4–5% drawdowns over long retirements.
• CPI+6–7%: Growth-oriented — high equity exposure, global diversification, higher short-term volatility. Appropriate for the accumulation phase; viable in retirement for those with sufficient capital to tolerate drawdown variability.

The practical implication is that a portfolio positioned too conservatively — because retirement feels like a time to reduce risk — can itself become a source of longevity risk. Running out of real purchasing power over 30 years is as problematic as running out of nominal capital. The goal is not capital preservation; it is income sustainability. Those are related but not the same thing.

Longevity Risk: Planning to the Average Is Dangerous

Retirement today lasts much longer than the conventional frameworks were designed for. A 65-year-old in reasonable health today has a meaningful probability of reaching 90. A couple, both aged 65, have a high probability that at least one of them will reach 90 — and a reasonable chance one reaches 95.

Planning to average life expectancy means, by definition, that roughly half of people will outlive their plan. For a retirement that needs to be financially resilient, that’s not a planning standard — it’s a coin flip.

The practical implication: a 30-year planning horizon from age 65 is not pessimistic; it is appropriate. And a 35-year horizon is defensible for someone in good health or with family longevity. The capital requirements implied by these horizons are materially higher than most people initially expect — which is why the numbers in the table below tend to cause surprise.

Tax: What Retirement Income Actually Costs You

Both life annuity income and living annuity drawdowns are taxed as ordinary income under SARS. There is no special retirement income exemption. This means retirement income planning done in gross terms will consistently overstate what is actually available to spend — sometimes by a material amount.

For a person aged 65 with standard rebates applied and no other income sources, approximate average tax rates at different gross income levels are:

The gap between gross and net widens substantially as income rises — a direct consequence of South Africa’s progressive tax system. For retirees with larger balance sheets and multiple income sources, this creates a meaningful planning opportunity. Drawing a portion of income as capital gains from discretionary investments (effective rate up to 18%), or taking dividends (withheld at 20%), can materially reduce the overall tax rate on retirement income compared to drawing everything as ordinary income from a living annuity. At higher capital levels, how income is drawn across vehicles is at least as important as the gross drawdown rate itself.

What the Capital Requirement Actually Looks Like

With income, drawdown, and tax understood, it becomes possible to translate a net income target into a rough capital requirement. The figures below are illustrative — they assume a 4% sustainable drawdown and indicative average tax rates for a 65-year-old with no other income sources. They are orientation points, not planning conclusions.

Assumptions: 4% annual drawdown, age 65, standard SARS rebates applied, no other income sources. Actual figures will vary significantly depending on income structuring, offshore exposure, and individual circumstances.

These numbers often cause surprise — particularly the figures required to sustain R75,000 or R100,000 per month net. The reason is straightforward: at a 4% drawdown, every R1,000 of monthly net income requires approximately R430,000 in capital (accounting for tax at the relevant rate). Over a 30-year retirement, that capital needs to both fund the income and keep pace with inflation. The numbers are large because the obligation is long.

Small changes in the underlying assumptions move these figures materially. A 5% drawdown instead of 4% reduces the capital requirement by roughly 20% — but meaningfully increases the probability of capital depletion for longer retirements. A 1% improvement in real portfolio returns, sustained over 30 years, can extend capital sustainability by a decade. These interactions are why retirement planning based on rules of thumb tends to produce outcomes that surprise people — in both directions.

Offshore Exposure and What It Changes

More South Africans are now thinking about retirement in global terms rather than purely in rands — and for good reason. A portfolio with meaningful offshore exposure has access to a broader opportunity set, reduces concentration in a single economy, and provides a natural hedge against rand depreciation over decades.

From a retirement planning perspective, offshore exposure doesn’t change the framework above — income, drawdown, longevity, and tax remain the core variables. What it can change is the return profile of the underlying portfolio, and the planning inputs used. A well-diversified global portfolio has historically delivered real returns in the CPI+4–5% range over long periods, which is precisely the return required to sustain a 4–5% drawdown. For retirees with discretionary offshore holdings, the income structuring considerations also expand — drawing on offshore capital can offer tax timing flexibility that a purely rand-denominated structure does not.

Our offshore investing guide covers the mechanics, vehicle options, and estate planning implications in more detail.

Why Assumptions Matter More Than the Number

The capital figures in the table above are sensitive to the assumptions behind them. This is not a caveat — it is the central point. Small changes in drawdown rate, return assumption, tax efficiency, or time horizon can shift the required capital by millions of rands. A retirement plan that depends on one or two optimistic assumptions all being correct is not a resilient plan; it is a plan that will feel increasingly fragile as reality diverges from the forecast.

The most useful exercise in retirement planning is not calculating the “right” number — it’s stress-testing the plan against plausible variations. What if returns are lower than expected? What if one partner lives 10 years longer? What if healthcare costs escalate faster than general inflation? A plan that holds up across those scenarios is a robust plan. A plan that works only under its base-case assumptions is a fragile one.