Working longer vs retiring now: What’s best for your retirement?

Following the 2023/2024 Retirement Reality report, it’s sobering that only 6% of us have enough saved up for retirement. That’s why it’s worth examining how working longer – among other factors – might affect your retirement readiness.

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.

What difference does one more year make?

You might be surprised how much impact just one extra year of work can have on your retirement picture.

Firstly, you’re still 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 – and that’s before counting your employer’s contributions or the tax benefits.

But the benefit is two-fold. Working an extra year doesn’t just mean more savings – it also means one less year of relying on those savings.

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 R12 million saved up to make that work for 20+ years of retirement. By working just one more year, you’re not only shortening your retirement period but also giving your existing savings more time to grow.

And speaking of growth – your current savings can do significant work in that extra year. A R5 million portfolio growing at 6% above inflation would add about R300 000 to your retirement pot – without you adding a single rand. That could be enough to cover several months of retirement expenses.*

* Note that for simplicity’s sake the above hypothetical example does not take into account potential market fluctuations or the variability of returns, fees or taxes, and assumes a consistent withdrawal and inflation rate.

A simple truth about expenses

Every rand you trim from your monthly expenses is actually 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 R5 000 extra you could save each month before retirement. But more importantly, it means you’ll need R1.2 million 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’re drawing less from your living annuity you’re not just preserving 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

While managing your daily expenses is important, 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 R6 million 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. 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 R7.5 million in savings instead of R6 million – that’s R1.5 million more just to compensate for higher fees.

This fee difference could mean either:

• Working several more years to accumulate the extra R1.5 million; 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.

Our 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: your savings level, expenses, ability to generate additional income, and personal circumstances. While working longer can improve your financial position, 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 for expense reduction;
• Explore potential additional income sources; and
• Use our 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 us if you’d like to explore more options for your retirement investments.

10X Investments is an authorised FSP. The 10X Living Annuity is underwritten by Guardrisk Life Limited. This article is not to be construed as advice.

10X Investments offers a range of investment options directly to the public which can be accessed via the My10X investor portal online at www.10x.co.za, via corporate pension funds as well as via your financial adviser.

Brought to you by 10X Investments.

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