Hybrid retirement strategy in South Africa
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Date
Authors
Van Niekerk, Andries
Moutzouris, Vasili
Mare, Eben
Journal Title
Journal ISSN
Volume Title
Publisher
AOSIS
Abstract
BACKGROUND : Many retirees in South Africa face the challenge of either outliving their
retirement savings or living below their means. Studies suggest a ‘safe’ withdrawal rate of
between 4% and 5%, which is below the average fund size-weighted drawdown rate of
approximately 6.66%.
AIM : To provide a scientific basis for the success rate of a ‘hybrid’ retirement strategy, whereby
a retiree invests a proportion of their savings in a life annuity and the remaining proportion in
a living annuity, to increase the success rate for South African retirees.
SETTING : Historical asset class returns (equities, bonds and inflation) for South Africa were
sourced for the period 1900–2020.
METHOD : Bootstrap sampling of historical asset returns was employed to simulate 10 000
random scenarios to investigate the success rate of various compositions of the ‘hybrid’
retirement strategy.
RESULTS : The success rate of all ‘hybrid’ portfolio compositions is significantly greater than
the success rate of a pure living annuity when the withdrawal rate is less than 8%.
CONCLUSION : In a South African context, a ‘hybrid’ retirement portfolio increases the
probability of success for retirees withdrawing less than 8% from their portfolio – which
constitutes approximately 50% of the current annuatised population – and may increase the
inheritance of a retiree’s heir.
CONTRIBUTION : Where other studies have focussed solely on the success rate of a living
annuity, we have shown that a ‘hybrid’ retirement strategy increases a South African retiree’s
likelihood of retiring successfully when the withdrawal rate is less than 8%, which is
approximately 50% of the annuatised population.
Description
DATA AVAILABILITY : Data are available from the corresponding author, A.J.v.N.,
under reasonable request.
Keywords
Retirement, Living annuity, Life annuity, Bootstrap simulation, Portfolio management, SDG-01: No poverty
Sustainable Development Goals
SDG-01:No poverty
Citation
Van Niekerk, A.J., Moutzouris,
V. & Maré, E., 2024,
‘Hybrid retirement strategy
in South Africa’, South
African Journal of Economic
and Management
Sciences 27(1), a5681.
https://DOI.org/10.4102/sajems.v27i1.5681.