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When planning for retirement \u2013 or for any investment from which you intend draw an income \u2013 the assumptions you make around returns, fees and taxation are critically important.<\/p>\n
These variables ultimately determine the sustainability of your income and the longevity of your capital.<\/p>\n
An expected return of around 10% per annum is a reasonable and realistic assumption for a well-diversified balanced portfolio.<\/p>\n
Read: Kganyago sees inflation around 3% in 2026<\/p>\n
Such a portfolio typically includes exposure to cash, bonds and equities, both locally and offshore. A common allocation would be 30-40% in defensive assets (cash and bonds) and 60-70% in growth assets (equities and alternatives).<\/p>\n
Most balanced strategies are managed with a return objective of CPI plus 6-7%, although this can and should be tailored to your specific circumstances \u2013 particularly your income requirements, risk tolerance, and investment horizon.<\/p>\n
\nActive management is essential to ensure the strategy continues to support your income needs through varying market conditions.<\/p>\n<\/blockquote>\n
Small differences in returns can have a significant impact over time. As a rule of thumb, a 1% difference in annual return can translate into three to four years of additional portfolio longevity.<\/p>\n
Many investors approaching retirement reduce their equity exposure in an attempt to be more conservative. While well-intentioned, this can have unintended consequences: if returns are too low, the portfolio may fail to keep pace with inflation and income withdrawals, leading to faster capital erosion.<\/p>\n
\nDuring retirement, the goal is not merely to preserve capital, but to maintain purchasing power while meeting your income needs.<\/p>\n<\/blockquote>\n
In this context, inflation should not be viewed solely through the lens of headline CPI.<\/p>\n
While the national inflation target may be closer to 3%, retirees often face higher effective inflation due to expenses such as medical aid premiums, which may increase by 7-9% per year.<\/p>\n
Inflation, therefore, is highly personal and should be assessed based on the actual cost structure of your household.<\/p>\n
Read:<\/p>\n
Inflation: The silent killer of retirement<\/div>\nFinally, the drawdown rate is a crucial variable.<\/p>\n
Even a well-constructed portfolio earning 10-12% per annum can erode rapidly if the income drawdown is too high. The commonly cited 4-5% drawdown guideline is based on long-term return assumptions of 10-12% and incorporates an inflation buffer of approximately 5-7%.<\/p>\n
Read: The hidden retirement risk: Drawing too much, too soon<\/p>\n
Striking the right balance between drawdown rate and investment strategy is essential to ensure your retirement capital remains sustainable over time.<\/p>\n<\/p><\/div>\n