Retiring comfortably in South Africa is not a cookie-cutter process… Here’s why.

“Rules are a useful guideline and generally should be heeded, but blindly following them eventually and inevitably leads to disaster.” Leland Exton Modesitt Jr

We encounter rules or guidelines every day of our lives. Even as investors, we are bombarded with the 10 (or however many) Golden Rules of Investing. And while these rules can be helpful, we cannot apply them blindly to our circumstances and hope for the best. Why? Because you and your circumstances are unique!

For example, if you want to determine if you have enough money to retire comfortably, following the three well-known rules of retirement investment below might be perfect. However, it could also lull you into thinking you have enough to retire comfortably when the opposite is true.

Following rules of thumb is not what lands us in hot water; it’s the act of following them blindly, as Mr Modesitt Jr describes. So, what we can (and should) do is adapt the rules of retirement investment to suit our individual circumstances!

The Rule of 120

This rule of thumb is supposed to guide you on the ‘ideal’ equity exposure based on how old you are. Here’s what the formula looks like in theory:

120 – [Your current age] = The percentage of equities/stock you should own as investments

The formula was designed to simplify asset allocation for investors, and it makes sense for many people as our risk capacity does get lower as we age. However, the fact remains that not all investors are the same, and neither are their circumstances. Consider the following:

  Investor 1 Investor 2
Age 35 35
Ideal retirement age 65 65
Marital status Married Married
Spouse working No Yes
Children 2 2
Other dependants 0 6


At first glance, these two investors could follow the Rule of 120 and invest 85% of their portfolios in equities. However, Investor 2 has eight dependants, while Investor 1 only has three. Clearly, Investor 1 could take on more risk than Investor 2 if they wanted to.

However, the 85% investment guideline might not be the best idea for Investor 2, and even Investor 1 might not be willing to risk it without a working spouse. What would happen if they fell ill or lost their job? Many factors could influence an investor’s risk appetite. This guideline also doesn’t necessarily make sense for older retirement investors with a healthy risk appetite and the means, as it will greatly limit them.

Our takeaway: The Rule of 120 simplifies retirement planning, but it cannot be applied blindly in the 21st century. Life expectancy is rising, and investors’ circumstances are too varied to only use age as a guideline for asset allocation.


The 4% Rule

This rule of thumb has been around for many years and applied universally by investors wanting to know how much they could withdraw from their retirement funds every year as well as asset allocation. Here’s what it looks like in theory:

Withdraw 4% of your savings annually (adjust for inflation annually after that) + Allocate and maintain at least 50% in equities = Retirement savings that will last at least 30 years

The 4% Rule started as a way to help retirement investors avoid prolonged market downturns or severe health issues. The Covid-19 pandemic and the Russia-Ukraine conflict have shown us that unexpected events can immensely affect our financial status.

So, while this rule is a good start for any retiree, it does not apply to every person.

For example, one person might decide to work longer and delay their retirement, so they won’t need the income from their retirement investment for many years. Another person might choose to withdraw a higher percentage at the start of their retirement and accept increases below inflation to reduce their real income over time.

Our takeaway: The 4% Rule doesn’t account for taxes, unexpected expenses, low interest rates, dividend yields, or return fluctuations. These factors can change over time and affect the amount of income that can be withdrawn, the decisions investors make, and how they choose to use their retirement investment.


The Rule of 72

Doubling your investment is always a good idea, and the Rule of 72 is a simple formula that estimates the number of years it will take to double the value of an investment. Here’s what it looks like in theory:

72 / [Your annual rate of interest percentage] = The number of years to double your investment

The Rule of 72 has been around since 1494, so it’s safe to say things have changed since then. Another notable disadvantage of blindly applying the Rule of 72 is that it’s only an estimation, especially when the rate of returns is higher than 10%. It also doesn’t work with investments that have a changing interest rate.

Our takeaway: Your retirement investment’s rate of return will likely change, rendering the Rule of 72 useless. If you want to double your investment, increase your contributions, and use compound interest.


We need more than rules to retire comfortably in South Africa

The rules above can help us plan for retirement. They are a good starting point, but they are not the be-all and end-all of retirement investing. They are sweeping statements… generalisations – not certainties, and they certainly cannot be applied to every investor’s unique circumstances (including risk tolerance, amount of savings, or job security).

Therefore, if you want to know how much you need to retire comfortably in South Africa, forget about inappropriate formulas and rules. Instead, focus on the things that can help you adapt (or that you can adjust in) your retirement plan so you can retire the way you deserve to.

When you consult with expert independent fund administrators like the mCubed Group, you can have a balanced retirement plan that considers your circumstances, obligations, etc. As a member, client, or participating employer of one of our retirement funds, you have access to the best investment administration and advice, excellent service, and complete transparency for the best long-term results. Our fund-appointed FAIS accredited financial advisors are here to ensure a safe, financially sound, and prosperous retirement for you.