What difference does one more year of work make?
You might be surprised by how much impact just one extra year of work can have on your retirement picture.
Firstly, you’ll still be adding to your nest egg. If you’re earning R80,000 monthly and putting away 15% for retirement, that’s another R144,000 in savings for the year, before counting your employer’s contributions or the tax benefits.
Secondly, the benefit is two-fold. Working an extra year means one less year of relying on those savings for day-to-day expenses.
Let’s break this down with real numbers:
Say you’re aiming for R50,000 monthly from your retirement savings to maintain your lifestyle. With a 5% yearly drawdown, you’d need about R12m saved up to make that work for 20-plus years of retirement.
If you work just one more year, you not only shorten your retirement period but also give your existing savings more time to grow.
Your current savings can also do significant work in that extra year.
A R5m portfolio growing at 6% above inflation could add about R300,000 to your retirement pot — without you adding a single cent. This could cover several months of retirement expenses.
- If you’d like to discuss your retirement options with highly experienced investment consultants at no cost to you, get in touch with 10X Investments.
A simple truth about expenses
Every rand you trim from your monthly expenses is worth double in retirement planning. But how?
Let’s assume you’ve decided to invest in a low-cost, high-performance living annuity and want to draw sustainable income from that investment.
If you reduce your monthly spending by R5,000, that’s the extra amount you could save each month before retirement.
More importantly, it means you’ll need R1.2m less in total savings to fund that same R5,000 monthly expense in retirement (assuming a 5% drawdown rate).
There’s an additional benefit: when you draw less from your living annuity you not only preserve more of your capital, you’re likely saving on tax too. Remember, you pay income tax on whatever you draw from your living annuity.
Drawing R30,000 monthly instead of R35,000 can mean significant tax savings over the years — money that stays invested, working for you throughout retirement.
The critical impact of investment fees
Managing your daily expenses is important, but there’s another cost that can dramatically affect both when you can retire and how long your money will last: investment fees.
The difference between paying 1% versus 2% or 3% in annual fees might seem small, but it can have a profound impact on your retirement timing. Let’s look at a practical example:
Imagine you have R6m in retirement savings and need R25,000 monthly income. With investment fees of 1% or less, you might achieve this with a 5% drawdown rate.
The difference between paying 1% versus 2% or 3% in annual fees might seem small, but it can have a profound impact on your retirement timing
— 10X Investments
However, if you’re paying 2% in fees, you’d need to reduce your drawdown rate to 4% to generate the same income with confidence that your savings will last through retirement.
This means you’d need R7.5m in savings instead of R6m — that’s R1.5m more just to compensate for higher fees.
This fee difference could mean either:
- Working several more years to accumulate the extra R1.5m; or
- Reducing your monthly income in retirement by R5,000 to maintain a sustainable drawdown rate.
In other words, when you invest with lower fees, you could potentially retire earlier, draw the same income from a smaller retirement pot, or keep your drawdown rate lower to help your money last longer.
The 10X Living Annuity Calculator demonstrates this clearly: lower fees mean more of your investment returns stay invested and compound over time, rather than being eroded by costs.
This can make the difference between retiring now or having to work several more years to build up additional savings.
- Did you know you can see if your investments could be doing better for you with a free comparison report from 10X Investments?
You don’t have to choose all or nothing
Retirement doesn’t have to be an all-or-nothing decision. Many South Africans are finding creative ways to blend different income sources as they transition into retirement.
Consider property rental. A rental property bringing in R8,000 monthly might not sound substantial, but it can make a meaningful difference to how much you need to draw from your retirement savings.
Or consider using your expertise for consulting work — even R10,000 a month from occasional projects means R120,000 less you need to take from your retirement pot each year.
Making smart lifestyle adjustments
Not every expense reduction requires a major sacrifice. In fact, many changes in retirement can naturally lead to lower costs:
- Housing often represents the largest expense in retirement. Downsizing to a smaller home or moving to a more affordable area can substantially reduce monthly expenses while potentially freeing up capital from your property sale.
- Transport costs typically decrease in retirement. Without a daily commute, many retirees find they can manage with one car instead of two, or switch to a more economical vehicle.
- Entertainment and dining patterns naturally evolve. Many retirees discover they spend less while enjoying life more, as they have time to plan and cook meals at home or enjoy entertainment during off-peak hours.
Finding your balance
The decision of when to retire depends on balancing several key factors — watch the video below. These include your savings level, expenses, ability to generate additional income, and personal circumstances.
Working longer can improve your financial position, but smart expense management and additional income sources might allow you to retire sooner than you think.
Consider these key steps:
- Calculate your essential monthly expenses;
- Review opportunities to reduce your expenses;
- Explore potential additional income sources; and
- Use the 10X Investments’ Living Annuity Calculator to understand how much income you can sustainably draw from your retirement savings.
Retirement planning isn’t just about reaching a specific savings number — it’s about creating a sustainable financial strategy that works for your unique situation.
Whether you choose to work longer, reduce expenses, develop additional income streams, or combine these approaches, understanding their relative impact will help you make the best decision for your future.
Talk to an expert
If you found this article helpful, you can explore more options for your retirement investments: get in touch with a 10X Investments consultant.
This article was sponsored by 10X Investments.
10X Investments is an authorised FSP (number 28250). The 10X Living Annuity is underwritten by Guardrisk Life Limited.
The content herein is provided as general information and does not constitute financial advice. Note that for simplicity’s sake the above hypothetical examples do not take into account potential market fluctuations or the variability of returns, fees or taxes, and assume a consistent withdrawal and inflation rate.
