For many South Africans, retirement planning is still understood as an accumulation exercise: save what you can, contribute to a retirement fund, preserve when possible and hope the numbers work by the time you stop earning a salary. But the real test of retirement planning begins when the pay cheque ends.
As longer lifespans, shorter working careers and volatile markets reshape the retirement landscape, investors need to think more carefully about the transition from building retirement capital to drawing a sustainable income from it. This is where asset managers and financial advisors have a critical role to play: helping investors understand the trade-offs between growth, risk, income and longevity.
“The goal of investing during retirement is simple: to maintain a real income for the rest of your life,” says Pieter Hugo, Chief Commercial Officer at STANLIB Asset Management. “By excluding growth assets from your portfolio, and drawing down too much income, you are setting yourself up for failure.”
This is a sobering message in a country where many people are not saving enough, cashing out retirement savings when changing jobs, or starting the process too late. Yet retirement risk is also about how money is invested, how quickly it is drawn down, how long it must last over what may be many decades, and how investors behave when markets become uncomfortable.
The rules have changed
Over the past several decades, the structure of retirement provision has shifted significantly. Under defined-benefit arrangements, employers carried much of the responsibility for providing a promised retirement benefit. With defined contribution arrangements, the responsibility has moved increasingly to individuals. That gives investors more control, but it also means they carry all of the investment risk and longevity risk themselves.
Longevity is one of the most underestimated risks in retirement planning. People are living longer, and for couples, retirement capital often needs to last until the death of the last surviving spouse. The implication is clear: retirement is a long-term financial phase that requires an investment strategy, an income strategy and regular reassessment.
Growth still matters in retirement
A common instinct at retirement is to become as conservative as possible. After all, once someone has stopped working, the fear of market losses becomes more immediate. But Hugo warns that moving too far away from growth assets can create a different kind of risk. “The old practice of de-risking a retirement portfolio on retirement to avoid market volatility actually means giving up growth assets when the investment pot is greatest,” he says.
This matters because retirement income must keep pace with inflation. A portfolio that is too conservative may feel safe in the short term, but it may not generate enough real return to support sustainable income over decades. A retirement portfolio still has to work after retirement; it cannot simply retreat into caution and hope to last.
Living annuity portfolios need enough growth exposure to give capital a fighting chance against inflation and drawdowns. Avoiding market volatility altogether can create a different danger: the risk that capital does not grow enough to sustain real income over time.
Living annuities, guaranteed annuities and the income decision
At retirement, many investors face a choice between a living annuity and a guaranteed annuity, or a combination of the two. A guaranteed annuity provides income certainty and longevity protection but typically offers less flexibility. A living annuity offers flexibility and investment choice, but the retiree carries the risk that the capital may be depleted if investment returns disappoint, drawdown rates are too high, or the retiree lives longer than expected.
The danger of drawing too much
Drawdown rates are one of the most important variables in retirement income planning. STANLIB’s modelling demonstrates how dramatically outcomes change as drawdown rates rise. At an annual drawdown rate of 2.5%, the likelihood of a living annuity running out of money over 40 years was zero or close to zero across the modelled categories. At a 5% drawdown rate, the picture changes.
At 7.5%, which STANLIB notes is the average drawdown rate identified in an Association for Savings and Investment South Africa (ASISA) study, the modelling shows material failure rates across categories. This is where the early years can be misleading. A living annuity may appear healthy for the first decade after retirement, even when the drawdown rate is unsustainable.
STANLIB describes this as a ‘honeymoon period’, because the real damage may only become visible much later, when the retiree has fewer options to correct course.
“Most retirees don’t realise the longer-term implications of drawing too much,” Hugo says. “The first 10 years after retirement is the honeymoon period, when living annuities don’t fail, largely irrespective of the investment returns and drawdown rates. At higher drawdown rates, they can start to fail after about 20 to 25 years.”
For investors and advisers, the lesson is clear: retirement income decisions must be reviewed continuously. A drawdown rate that feels manageable at the start may become dangerous if markets underperform, inflation rises, or the investor lives longer than expected.
Avoiding reactive decisions
Market noise can create pressure to act, but reactive decisions often damage long-term outcomes. Selling after a market crash, switching too frequently, abandoning growth assets too early or drawing more income than the portfolio can sustain are behaviours that can weaken a retirement plan. The same principle applies before retirement: waiting too long to invest, interrupting contributions or cashing out savings when changing jobs can reduce the capital available later.
Asset managers therefore play an important role in South Africa’s broader retirement ecosystem. Banks may help people access and engage with financial tools; insurers may provide protection and income certainty; but asset managers and financial advisors help investors pursue the growth and investment discipline needed to sustain long-term outcomes.
As one of South Africa’s major investment managers, STANLIB brings an asset-management lens to this challenge, drawing on experience across fixed income, multi-asset, listed property, equity and alternatives. Its analysis of living-annuity outcomes, using historical returns and scenario modelling, highlights how sensitive retirement-income sustainability can be to asset allocation, drawdown rates and longevity assumptions.
Planning across the full retirement journey
Guaranteed annuities and living annuities are not necessarily an either-or choice. In appropriate proportions, both can form part of a retirement income strategy.
The same applies to the broader retirement journey. The right strategy at age 30 will not be the same as the right strategy at age 50 or 65. Younger investors have time on their side and should make that work for them by investing consistency into higher growth assets, even if their contributions aren’t that high. Mid-career investors may need to increase contributions, preserve accumulated savings and reassess their investment strategy. Pre-retirees need to understand the income implications of their choices. Retirees need to manage drawdowns, inflation and longevity risk with discipline.
“Retirement planning needs to be for both spouses, not only the main member,” Hugo says. “Investors should also be aware that the sustainability of a living annuity is highly sensitive to drawdown rates, and that they need to manage this very carefully throughout retirement.”
Retirement security is built through a coordinated ecosystem of access, advice, investment expertise and protection. Within that ecosystem, disciplined long-term investing remains one of the strongest tools available to help South Africans turn retirement from a future fear into sustainable financial reality over time.