How Much Monthly Income Can You Expect from Your Retirement Savings in South Africa?
Retirement planning is about more than just reaching a savings target. It’s about knowing what kind of monthly income you can safely draw from your retirement funds once you stop working. Whether you’ve built up your savings through a pension fund, retirement annuity, or provident fund, converting that lump sum into a reliable monthly income is a critical part of retiring well.
In South Africa, most retirees choose between two main retirement income products: the living annuity and the life annuity. Each option offers different features, levels of flexibility, and income potential. Choosing the right one depends on your lifestyle needs, risk tolerance, and long-term financial goals.
Let’s break down how these products work and see what kind of monthly income you could expect based on a realistic retirement lump sum example. This blog post is based on a Moneyweb Reader Question I previously answered. You can view the original question and my detailed response here: What monthly income can I expect if I reinvest R2.9m in another pension fund?.
Retirement Savings vs. Retirement Income
Before estimating how much income you can expect, it’s important to understand the difference between retirement savings products and income products. Retirement savings products are designed to help you build wealth before retirement. These include pension funds, which are typically offered by employers, as well as provident funds, retirement annuities, and preservation funds.
Once you retire, the focus shifts to retirement income products, which are designed to provide a regular monthly income. These include life annuities, living annuities, and hybrid annuities that combine features of both. In South Africa, when you retire, you can withdraw up to one-third of your retirement savings as a lump sum—this amount is subject to retirement lump sum tax. The remaining two-thirds must be used to purchase an income-generating product, such as a living or life annuity. However, if your total retirement fund value is less than R247,500, you may be permitted to take the entire amount in cash.
How Much Do You Need to Retire Comfortably?
There’s no universal retirement savings number that fits everyone—it depends on various personal factors. Your desired monthly income, expected retirement age, life expectancy, lifestyle, and whether you have other sources of income like rental earnings, a business, or inheritance all play a role in determining your ideal target.
As a general guideline, many financial advisors recommend saving between 15 to 20 times your expected annual retirement income. For example, if you’re aiming for a monthly income of R20,000 (which totals R240,000 per year), your savings goal would typically fall between R3.6 million and R4.8 million.
Now, let’s consider a more realistic scenario. What if you’ve saved around R2.985 million? Below, we’ll explore what kind of monthly income you can expect from this amount and which income-generating options may be best suited to your retirement plan.
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A Realistic Retirement Savings Example: R2.985 Million
While many South Africans retire with less than R1 million, those who’ve consistently contributed to a pension fund or retirement annuity — especially higher-income earners — may reach around R2.9 million by age 60.
This amount isn’t common for the average South African, but it’s a reasonable benchmark to demonstrate what kind of monthly income is possible through different annuity products.
Option 1: Life Annuity – Guaranteed Income for Life
A life annuity is an insurance-based product that provides you with a fixed, guaranteed income for the rest of your life. You essentially exchange your retirement capital for the certainty of monthly payments.
Key Features:
- Income is guaranteed for life – no investment risk.
- You can choose annual increases (e.g., fixed 5%, inflation-linked, or level).
- Add-ons include a guaranteed minimum payment period (e.g. 5 or 10 years), or a spousal benefit.
- You cannot access the capital or change your terms once purchased.
Life Annuity Income Estimates (Based on R2.985 Million)
According to a Moneyweb Q&A answered by a certified financial planner, here’s what you could earn from a life annuity with the following conditions:
- 5-year guaranteed term
- Inflation-linked income escalation
- No spouse’s benefit
| Gender | Monthly Income (Before Tax) |
| Male | R17,063 |
| Female | R15,275 |
Note: Life annuity income is slightly lower for females due to longer life expectancy. Insurers expect to pay females over a longer period.
This type of annuity offers peace of mind — you’ll never run out of income, regardless of how long you live.
Option 2: Living Annuity – Flexibility and Growth Potential
Hybrid Annuity: Best of Both Worlds?
A living annuity gives you more control. Your capital remains invested, and you choose how much income to draw (between 2.5% and 17.5% per year). The income is not guaranteed, and the performance depends on your investment returns.
Key Features:
- Flexible income change your drawdown rate annually.
- Full control over investment choices (via your financial advisor).
- Remaining capital can be left to your beneficiaries.
- Risk of running out of money if you draw too much or markets underperform.
Living Annuity Income Example (5% Drawdown)
Using the same R2.985 million, if you start with a 5% annual drawdown, that equals:
- R149,250 per year
- R12,438 per month before tax
Assuming:
- 5% annual income escalation
- 9% average investment return
- Your capital could last approximately 25 years
Of course, results vary. If markets perform well or you reduce your drawdown rate, your capital may last longer. If you increase your withdrawals or markets perform poorly, you risk depleting your capital sooner.
Life vs Living Annuity – Comparison Table
Some South African retirees opt for a blended approach known as a hybrid annuity. In this strategy, a portion of the retirement capital is invested in a life annuity to provide a guaranteed baseline income, while the remainder is placed in a living annuity to allow for flexibility and potential investment growth. This combination offers the security of fixed income with the opportunity to benefit from market performance, helping to manage inflation and reduce the risk of outliving your savings.
What About Taxes?
Income received from either a life or living annuity is subject to income tax under South African law. The product provider deducts PAYE (Pay-As-You-Earn) tax before you receive your payout.
Fortunately, South Africans over 65 qualify for higher tax rebates, which reduce their effective tax rate.
2025/26 tax rebates for over-65s:
- Primary rebate: R17,235
- Secondary rebate (over 65): R9,444
This means you can receive a portion of your annuity income tax-free, depending on your total taxable income.
Choosing the Right Annuity: What to Consider
When deciding between a life or living annuity, it’s important to consider your personal circumstances. Factors such as your health and expected lifespan, your comfort with investment risk, and how much income stability you need all play a role. You should also think about whether leaving a legacy for your loved ones is a priority, and how confident you are managing investments on your own or with the help of a financial advisor.
| Feature | Life Annuity | Living Annuity |
| Income Guarantee | Yes | No |
| Flexibility | None | High |
| Capital Access | No | Yes |
| Investment Risk | Insurer takes it | You take it |
| Legacy / Inheritance | Usually none | Capital passes on |
| Annual Income Escalation | Optional | Optional |
| Adjust Income Later | No | Yes |
| Income Duration | Lifetime | Depends on drawdown & returns |
