Landing the retirement plane
By Riaan Botha, Head: Benefit Consulting and Actuary
When do we want to retire? When can we afford to retire? When are we allowed to retire?
The answers to these questions often vary.
Retirement is not a single event, but a complex journey influenced by multiple factors. To explain this, we use 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.
The control room
In the control room we have five major controls:
- Retirement age
- Contribution levels
- Investment strategy
- Costs
- Preservation
These controls interact dynamically, and their settings determine the adequacy of retirement benefits. However, there are additional factors influencing the journey: Our lifestyle – do we fly first class when we can only afford economy? Our connection flight – what annuity do we purchase? External conditions – what turbulence or tailwinds do tax and regulation create?
Control impacts
Retirement age is one of the most influential controls. A five-year shift from 65 to 60 shortens the savings runway and lengthens the drawdown period, reducing replacement ratios dramatically – the so-called “double whammy” impact. If a retirement fund member saves 17.5% of salary over her career earning an average annual investment return of CPI plus 5%, and retires at 60 instead of 65, it will slash her replacement ratio from 75% to 53% of salary!
Contribution levels are the fuel for the journey. Sustainable rates hover around 17.5%, yet many contribute closer to 12.5% according to industry research. Interestingly, contributing 12.5% rather than 17.5% of salary over 40 years has the same impact as contributing 17.5% but retiring at 60 instead of 65. Furthermore, pensionable salary definitions that fall significantly below total remuneration can materially reduce the effective contribution rate. It is therefore essential to evaluate contribution categories and salary definitions in tandem to ensure alignment and adequacy.
Investment strategy provides thrust. Compound interest is claimed to be the eighth wonder of the world. A regular, small percentage of outperformance over a long period has a massive impact on outcomes. However, relying on aggressive returns to offset the negative impact of early retirement is unrealistic. 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.
Costs act as a drag. Although reducing operational cost is important, it barely moves the needle compared to other control levers. A saving of 0.5% of salary every year will improve the retirement outcome by a mere 3% for someone contributing around 17.5%.
Preservation ensures fuel and thrust aren’t lost during mid-flight job changes. Lack of preservation is the biggest destructor of retirement outcomes. 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.
Controlling the controllables
The control room is crowded. Employers, trustees, management committees and employees all have hands-on controls. Employers set retirement ages and contribution structures; trustees govern fund rules, costs and investments; employees decide on contribution levels, investment choice outside defaults, preservation and timing. Misalignment between these stakeholders often leads to poor outcomes.
The retirement age control
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. Yet, raising retirement age is easier said than done. Social and cultural expectations, health realities, income inequality and workforce dynamics shape retirement timing and decision-making.
In South Africa, normal retirement age typically ranges between 60 and 65, with early retirement allowed from 55. The state old age grant (SOAG), payable from 60, reinforces perceptions of readiness even as longevity risk grows. However, the SOAG is means-tested and merely provides poverty relief.
In countries that do offer rich state pension benefits, people want to retire sooner rather than later. Increasing life expectancy and declining fertility rates pose a significant social and political challenge to those governments. The mechanism used to balance the numbers in a pay-as-you-go (PAYE) funded system, is by increasing retirement age.
Striking the right balance between workforce productivity, transformation and improved retirement outcomes remains a complex challenge for employers. Early retirement in defined contribution systems places greater financial responsibility on members, reducing their savings and the benefits of compound interest, while extending the period over which those savings must last. Navigating these dynamics requires thoughtful policy and ongoing collaboration to support both business objectives and member wellbeing.
Successful landing
To land the retirement plane successfully, all controls must work in harmony. If retirement age is set too low, contribution levels are too modest, and benefits are not preserved, the plane runs out of fuel before reaching its destination. Conversely, aligning retirement age with realistic contribution rates, disciplined preservation and a sound investment strategy, ensures a smooth landing.
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.
Retirement is personal, but its success depends on collective control. In a world where the target keeps moving, managing the control room is not optional, it is 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.
25 February 2026