AS Brokers insight · Retirement income

Why most South African retirees underestimate inflation

Inflation rarely arrives as a crisis. It works slowly, quietly and patiently — which is exactly why it is the retirement risk most people plan for least. This article explains why your real cost of living climbs faster than the headline number suggests, and what that means for a retirement income that may need to last 30 years.

Inflation is the risk that doesn’t feel like a risk

When the market falls 20% in a week, retirees feel it immediately. The statement is smaller, the headlines are alarming, and the instinct to react is strong. Inflation behaves in the opposite way. There is no single bad day. Prices simply drift upward, a little each month, until one year you notice that the income that comfortably covered your life five years ago no longer stretches as far.

Because there is no moment of shock, there is no moment of action. The plan is never formally reviewed against inflation, the escalation rate set at retirement is never revisited, and the erosion compounds in the background. The danger is not that inflation is dramatic. The danger is that it is gradual enough to ignore.

The headline number was never designed for retirees

Statistics South Africa measures consumer inflation (CPI) using a basket of goods and services meant to represent the spending of the average household. In May 2026, headline CPI was 4.5% — the highest reading since July 2024 — while the 2025 annual average came in at 3.2%, the lowest in 21 years. In November 2025 the South African Reserve Bank also adopted a new 3% inflation target, replacing the longstanding 3–6% range.

Those are useful national signals. The problem is that no real household actually spends like the “average” one — and a retiree’s basket looks very different from a working family’s. The categories that weigh heaviest on retirees are often the very categories that inflate fastest.

Where a retiree’s costs sit

Medical scheme contributions — these have consistently risen several percentage points above CPI for years, and they make up a far larger share of a retiree’s budget than a younger person’s.
Electricity and municipal rates — administered prices that have repeatedly outpaced headline inflation, hitting hardest the people who are home all day.
Food — a larger proportion of a fixed retirement income than of a salary, so food-price moves are felt more acutely.
Less offset from the things that ease CPI — retirees benefit far less from cheaper electronics, data or new-vehicle pricing, which help pull the national average down.

Your personal inflation rate vs the national rate

The single most useful idea in this article is this: you have your own inflation rate. It is set by how you spend, not by how the country spends on average. For many retirees, a personal inflation rate that runs one to three percentage points above headline CPI is entirely realistic, because medical care, electricity and rates carry so much weight.

You can estimate yours without a spreadsheet degree. List your major expense categories, note roughly how much each rose over the past year, and weight them by how much of your budget each one consumes. A retiree spending a quarter of their income on medical cover will feel medical inflation far more than the official basket implies. Two people in the same suburb, in the same year, can experience meaningfully different inflation simply because their spending is shaped differently.

Estimate it for yourself

Use the calculator below to see how a chosen inflation rate changes the future buying power of a fixed income — and try it with a rate slightly higher than the headline number to reflect a typical retiree’s basket.

How compounding turns a small number into a big shortfall

A rate like 5% sounds modest for a single year. The trouble is that retirement is not a single year — it is potentially 25 to 30 of them, and inflation compounds across all of them. The same arithmetic that grows your investments works against the buying power of a fixed income.

The illustration below shows what a fixed R10,000 a month today would be worth in real buying power at a steady 5% inflation rate. The figures are illustrative and assume a constant rate; real inflation varies year to year.

Years into retirement	What R10,000/month is worth (5% inflation)	Buying power lost
10 years	≈ R6,140	−39%
20 years	≈ R3,770	−62%
30 years	≈ R2,315	−77%

Read the other way around, this is sobering: to preserve the buying power of R10,000 a month over 20 years at 5% inflation, your income would need to grow to roughly R26,500 a month. That is the quiet target every retirement income has to chase — and at 6% it has to chase even harder.

Plan for 30 years, not 15

This is where longevity risk and inflation risk meet. A 65-year-old today may well live into their nineties. Planning around an “average” life expectancy quietly assumes you will be average — but half of people live longer than the average. The longer you live, the more years inflation has to compound, and the two risks reinforce each other.

“A retirement income doesn’t have to keep up with the country’s inflation. It has to keep up with yours.”

Where inflation quietly breaks a living annuity

A living annuity gives you control: you choose an income drawdown of between 2.5% and 17.5% of your capital each year, and you carry the investment and longevity risk yourself. According to ASISA, the average living annuity drawdown was 5.6% in 2024 — the lowest on record — which is encouraging. But averages hide a lot of individual exposure.

Industry guidance broadly suggests drawdowns of around 4% to 5% in the first decade of retirement, staying below 8% later on, to give a high probability of preserving income for life. The principle underneath it is simple: if the percentage you draw exceeds the real (after-inflation) return your portfolio earns, your capital base shrinks — and once it starts shrinking, every future inflation increase has a smaller pot to come from.

The “point of ruin”

Escalating your income by inflation each year is not automatically safe. If your capital is eroding, that rising rand income becomes a rising percentage of a shrinking pot. Eventually you can hit the 17.5% ceiling — the legal maximum drawdown.

At that point you can no longer increase your income to match rising costs, and its real value falls every year thereafter. The income doesn’t stop — it just quietly loses ground for the rest of your life. This is the outcome a good plan is designed to keep you away from.

Sequence of returns matters too

Two retirees can earn the same average return over 20 years and end up in very different places. If the weak years arrive early — while you are drawing income — your capital takes a deeper hit and has less left to recover with. Combine an unlucky early sequence with inflation-linked income increases, and the drawdown percentage can climb far faster than anyone planned for.

The false comfort of low-inflation years

Here is the contrarian point. Low-inflation periods are not when retirees should relax — they are often when poor assumptions get locked in. With the 2025 average at a 21-year low and a new 3% target in place, it is tempting to conclude that inflation is “handled” and set a modest escalation rate for good.

But a benign headline number masks medical and administered-price inflation still running well above it, and a plan built for 3% has little margin if costs surprise on the upside over a 25-year horizon. Calm years are the right time to build in resilience, not to remove it.

What I see in practice

A few patterns repeat across long experience with South African retirees:

The escalation rate is chosen once at retirement and then never revisited — sometimes for a decade.
People are genuinely surprised by how quickly medical premiums and electricity outran their pension, because those costs sit outside the headline number they were watching.
Retirement feels completely comfortable in the first few years, which is precisely when purchasing power begins slipping unnoticed.

None of these are failures of discipline. They are the natural result of a risk that never announces itself. The fix is rarely dramatic — it is usually a regular review that catches the drift before it compounds into a problem.

Building inflation into a retirement plan — properly

You cannot remove inflation risk, but you can plan around it deliberately rather than hope it stays small.

Think in real returns, not nominal ones. A 9% return means little if your personal inflation is 7%. What matters is the gap between what you earn and what your costs do.
Match the income structure to the risk. Guaranteed (life) annuities, living annuities and hybrid combinations each handle inflation and longevity differently. There is no universally “best” option — only the one that fits your circumstances, and each carries trade-offs worth understanding.
Review every year. A living annuity can be adjusted once a year on its anniversary. That review is where drawdown, returns and rising costs are checked against each other before pressure forces a decision.
Get a professional second opinion. An independent review tests your assumptions against your actual basket and a realistic time horizon, not an average one.

Key takeaways

Headline CPI is a national average; your retirement has its own, usually higher, inflation rate.
Medical, electricity and municipal costs — heavy items for retirees — tend to rise faster than CPI.
Even 5% inflation can cut the buying power of a fixed income by more than half over 20 years.
Inflation and longevity reinforce each other: plan for 30 years, not an average lifespan.
Escalating annuity income by inflation is not automatically safe — it interacts with drawdown and returns.
Low-inflation years are when complacent assumptions get baked in. Review regularly.

Frequently asked questions

What is the current inflation rate in South Africa?

Headline CPI was 4.5% in May 2026, the highest reading since July 2024, after a 2025 annual average of 3.2%. Inflation prints update monthly, so confirm the latest Stats SA release for the current figure.

Why do retirees experience higher inflation than the official rate?

Because their spending is concentrated in categories — medical cover, electricity, municipal rates and food — that have tended to rise faster than the overall basket, while they benefit less from the items that pull the average down.

What is a personal inflation rate?

It is the inflation you actually experience, based on your own spending mix rather than the national average. You can estimate it by weighting each major expense by how much of your budget it consumes.

What is a safe living annuity drawdown rate?

There is no single safe number, but industry guidance broadly points to roughly 4%–5% early in retirement and staying below 8% later. The right level for you depends on your capital, returns, age and other income, which is why an annual review matters.

What happens if I reach the maximum drawdown limit?

At the 17.5% ceiling you can no longer increase your income, so its real value falls each year as prices rise. Sound planning aims to keep you well clear of that point.

Does a guaranteed annuity protect against inflation?

Only if it is structured to. A level guaranteed annuity pays a fixed amount that loses real value over time, whereas an inflation-linked version increases each year — usually starting from a lower initial income. Each design carries a trade-off worth weighing.

A final word

Inflation is not the most exciting risk in retirement, and that is exactly why it is so often underestimated. It does its work quietly, over years, on the one thing a retiree cannot easily replace: the buying power of a finite pool of capital. The retirees who handle it well are rarely the ones who predicted it perfectly — they are the ones who built a plan they could understand, measure and review before pressure forced a decision.

That is the heart of the AS Brokers philosophy: create wealth, protect wealth, preserve wealth. Wealth gives freedom of time — but only if it keeps its value for as long as you need it.

About AS Brokers

AS Brokers helps South African retirees, business owners and families make better long-term financial decisions through retirement planning, investments, risk management, estate planning and business assurance. If you would like an independent view on whether your retirement income is built to keep pace with your own cost of living, speak to an AS Brokers adviser for a professional review.

This article is educational content and not personalised financial advice. It does not guarantee returns or predict future investment performance, and market values can rise or fall. Figures referenced (including inflation, drawdown and annuity rates) change over time — confirm the latest data from Stats SA, the SARB and ASISA, and obtain advice suited to your own circumstances before making any decisions.