AS Brokers insight · Part 2 of the inflation series

The number that could ruin your retirement

Choosing the right inflation rate for a 20 to 30 year plan. The headline CPI figure is technically valid - but for a Self-Funding Retirement, it can be dangerously misleading.

The danger of believing the headline

In Part 1 of this series we showed why South Africa's official CPI figure - currently sitting around 3% - often fails to reflect the real cost of living for middle-class households. Medical aid, insurance, fuel, and food can inflate at rates two to four times the headline number.

That gap matters for everyone's budget today. But for someone planning retirement, it can be the difference between funding your own retirement comfortably and quietly running out of money in your seventies.

The question every retirement planner must answer honestly is this: which inflation figure should I use when building a 20 to 30 year plan? The wrong answer - and it's the most common one - is to use whatever the Reserve Bank is currently targeting.

Why the "official" rate is the wrong starting point

In November 2025, South Africa formally adopted a new inflation target of 3%, with a ±1 percentage point tolerance band - replacing the 3-6% band that had stood for 25 years. It is a positive structural change.

But South Africa's 25-year average inflation was approximately 5.4% per year. Over that period, prices rose by 271% in total. Administered prices like electricity and water have been running at roughly double the CPI average. Using 3% as your long-term planning assumption is, in almost all scenarios, dangerously optimistic.

The compounding problem: small differences, massive consequences

Consider a retiree who needs R50 000 per month in today's money to maintain their lifestyle. Watch what happens to that figure over a normal retirement horizon, at different inflation assumptions.

Assumed rate	After 20 years	After 30 years
3% · SARB target	R90 306	R121 363
5% · Conservative planning	R132 665	R216 097
6% · Moderate planning	R160 357	R287 175
7% · Historical average	R193 484	R380 613
10% · Medical inflation	R336 375	R872 470

The difference between planning on 3% and planning on 6% over 30 years is not marginal. It represents a retiree needing almost two and a half times more monthly income than the optimistic scenario assumes. A portfolio built around the wrong assumption will not quietly underperform - it will collapse.

Model your own numbers

See what your future income needs to look like

Use the calculator below to see how different inflation assumptions change the monthly income your retirement plan will need to deliver over 20 or 30 years.

Your retirement has multiple inflation rates, not one

The most important insight for retirement planning is that your spending is not a single homogenous block. Different categories of your life inflate at dramatically different rates. A realistic model breaks retirement spending into at least three categories - each with its own assumption.

Category 1

Healthcare & medical aid

Plan at 10 - 12% per year

Medical aid premiums rose 10.5% in 2025 and 10.3% in 2024. A couple spending R20 000 per month on medical aid today could face R51 874 by age 85, and R83 850 by 90 - purely from premium inflation.

Category 2

Core living costs

Plan at 5 - 6% per year

Groceries, short-term insurance, rates, utilities, transport. Electricity rose 11.6% year-on-year in April 2025. Aligns with South Africa's 25-year actual average of 5.4% - a far more honest guide than the current headline reading.

Category 3

Lifestyle & discretionary

Plan at 3 - 5% per year

Travel, hobbies, dining out. The good news category: spending here tends to moderate naturally as energy levels reduce in the late seventies and beyond, partially offsetting the rising healthcare burden.

"Healthcare is the single largest inflation risk in a South African retirement - and it grows as a share of your spending every year you live."

Building your personal blended inflation rate

Rather than applying a single CPI figure to everything, thoughtful retirement planning requires constructing a personal inflation rate - a weighted average based on how you specifically spend your money. The process is straightforward.

Map your current monthly spending across healthcare, core living, and discretionary categories.
Apply the category rates above - 10-12%, 5-6%, and 3-5% respectively.
Calculate a weighted blended rate. For a household allocating 30% to healthcare, 55% to core living, and 15% to discretionary, the blended rate works out at approximately 6.9% per year - more than double the current headline.

AS Brokers framework

What planning rate should you actually use?

Conservative household · 5.5%

Modest spending, lower medical aid tier, own property. The minimum credible rate for any South African plan.

Middle-class household · 6.5%

Comprehensive medical aid, multiple vehicles, possible school costs. Model healthcare separately at 10-12% to stress-test the plan.

Upper-middle and high-income · 7%

Top-tier medical aid, multiple properties, private security, offshore exposure. Add rand depreciation stress tests.

The unique South African risks that make it worse

Beyond general inflation, South African retirees face several country-specific compounding risks that planners elsewhere do not.

Rand depreciation. The rand has weakened approximately 7% annually against the dollar over the past 20 years. Any retirement that includes imported goods, offshore travel, or dollar-denominated costs carries a currency risk that domestic CPI does not capture.

Healthcare scheme uncertainty. Rising claims, scheme consolidation, and the looming NHI uncertainty mean the future cost and accessibility of comprehensive medical aid cover over a 20-30 year retirement is genuinely uncertain.

Longevity risk is growing. A couple retiring at 60 today has a material probability that at least one partner lives past 90. That is 30+ years to fund - and every percentage point of underestimated inflation compounds over that timeline.

The Two-Pot temptation. Since September 2024, every Savings Pot withdrawal is taxed at marginal rates and permanently reduces compounding capital. Using it to soak up inflation-driven monthly pressure has a severe long-term cost.

The practical checklist

For anyone approaching retirement planning in South Africa's current environment, these adjustments are not optional - they are necessary.

Never use headline CPI as your personal inflation rate. Build a blended figure from your actual spending categories.
Model medical aid separately and aggressively, at 10-12%, across the full retirement period.
Target a drawdown rate of 4-5% maximum. Anything above 5% creates a high probability of capital erosion within 15-20 years.
Aim for 20× final annual salary as your capital target. Below 15× is a high-risk position.
Include offshore exposure within Regulation 28 limits to hedge rand depreciation.
Review your plan every year - not every five. Inflation surprises shift trajectories quickly.
Do not use the Two-Pot Savings Pot to top up monthly income. The compounding cost is severe.
Speak to an AS Brokers adviser before changing your drawdown rate, asset mix, or annuity strategy.

Common questions

If headline CPI is 3%, why should I plan on 6%?

Because your retirement spending is not weighted like the CPI basket. Medical aid, electricity, water, insurance and rates make up a far larger share of a retiree's budget than they do of the national index - and those items have all been rising well above CPI for years.

Will the SARB's new 3% target hold for 30 years?

No one can guarantee that. The target is genuine policy ambition, but South Africa's 25-year average remained at 5.4%, and administered prices remain structurally above target. Build the plan as if the target will not fully hold - if it does, that's upside.

How often should I revisit my inflation assumptions?

Annually. A single fuel, electricity, or medical aid surprise can shift your real income trajectory materially between five-year reviews. Annual stress testing is far safer.

What is the single biggest inflation risk in a South African retirement?

Healthcare. It compounds at roughly double CPI, grows as a share of your spending every year you live, and is the line item most sensitive to scheme consolidation and regulatory shifts.

The bottom line

South Africa's official inflation figure is technically valid but practically limited as a guide to the real cost of living. For retirement planning over 20 to 30 years, treating it as your primary assumption is not just imprudent - it is financially dangerous.

The people who run out of money in retirement do not usually do so because markets crashed. They do so because they underestimated how much more everything would cost - and planned on a number that felt reassuring at the time. Speak to an AS Brokers adviser before locking in any inflation assumption that drives your long-term plan.

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