The South African retiree's guide to sustainable withdrawal strategies

AS inflation remains elevated and market volatility persists, many retirees face difficult choices about when and how much to draw from their retirement savings.

- KERRY KING

With longevity increasing and investment returns volatile, South Africans must balance immediate financial needs with the sustainability of their retirement portfolios.

Inflation and its impact on retirement

Inflation is the annual increase of goods and services, including food, electricity, and other daily living costs, and poses financial risk, particularly to retirees.

In South Africa (SA), we have had over 10 years of low growth, with little prospect of this changing soon. Coupled with the low growth, we have also had higher inflation than developed markets. This combination creates an environment where capital is depreciating faster than it can grow. Ultimately, persistent inflation erodes purchasing power and puts pressure on retirees who have a fixed capital base.

The sustainability of drawdowns

Most retirees have a defined capital base, their retirement savings, and they have made certain calculations and assumptions to ensure this base will be sufficient for the remainder of their lives. If retirees draw more than planned, often due to inflationary pressures, there is a real risk that their capital base will be depleted earlier than calculated.