By Penelope Gregoriou
Millions of South Africans rely on the money saved in their employers’ retirement fund to earn an income in retirement. For many people, this is their only formal savings for retirement. Unfortunately, too often, this money is still not enough to sustain them in retirement.
Being a young professional has its fair share of demands and complexities, with real, day-to-day demands, such as housing, transportation and health needs all perpetually competing for a share of your wallet.
Retirement savings, quite frankly, is a low priority for many. But research shows that it is critically important for young professionals to take responsibility in reaching a reasonable income in retirement – the sooner, the better.
According to the 2021 Alexforbes Member Insights publication, 65% of members aged between 20 and 30 are expected to replace and live on less than 60% of their final salary when they retire because they have not saved enough during their working lives.
Consider this: if you had retired today, could you live comfortably on less than 60% of your monthly take-home salary? This is expected to drop even further below 60% due to low contributions and not keeping retirement savings invested when changing jobs throughout the remainder of working careers.
Research by the publication found that a retirement fund member who has actively increased retirement fund contributions by 0.25% each year since 2012 would have achieved a 2% increase in salary contribution rate by 2020.
A small incremental increase such as this can lead to an almost 10% improvement in expected retirement benefits for younger members.
The need for better solutions
The key underlying issues compromising pension outcomes are largely due to younger members:
- choosing lower contribution rates to increase their take-home pay
- having little or no access to relevant information
- not clearly understanding what their options are at critical points in their financial journey
- not knowing the long-term consequences of the financial decisions they make today
- not having access to financial advice or financial counselling
There is mounting evidence that more people are realising how important the right information at the right time is and the long way it can go in supporting their financial journey and setting them in the right direction.
Digital member engagement solutions, financial wellness programmes and seamless in-fund and out-of-fund savings solutions all serve a valuable purpose in helping young members improve decision-making and the prospects of a more comfortable retirement.
Supporting this notion is the finding that 78% of retirement fund members want short-term and long-term financial planning (2021 Alexforbes Member Insights). It is clear that retirement funds cannot only be solved for retirement savings and income.
Providing expert, holistic advice on retirement, group risk, health management, healthcare, investments, employee wellbeing solutions, and skills development can help members make the most of their long-term financial futures.
More members are realising the advantages of having access to holistic solutions that provide them with personalised information, engagement and advice to make better, informed decisions today while still helping them plan for tomorrow.
Enabling the good and mitigating the bad
Retirement might seem like a far-off reality – especially when you have just started working – but it is still a reality. Your money competes for a lot of immediate priorities, but a long-term priority can only be met in the present.
While you might often feel like you are on a see-saw of financial instability and discomfort, finding financial services that can provide you with a balance of pertinent products and solutions during critical times in your career – such as joining or leaving a company – can assist to preserve savings intended for long-term priorities, such as retirement.
Though there are challenges that come with being a younger professional, it does come with the significant benefit of time. As a younger investor in a retirement fund, you have a long-term investment horizon. Saving from an early age means that your money has more time to work for you.
Thanks to the impact of compound interest, the amounts contributed in the early years of retirement saving add the most to your probability of a comfortable income at retirement. That is why it is imperative to maximise this opportunity as best and as early as you can.
You don’t have to do it alone
Employee benefits and what they can offer employees have evolved into solutions that are relevant and effective enough to guide members, especially during the critical moments earlier in their careers and lives.
Previously isolated benefits are now more integrated into employer-sponsored retirement funds to mirror the reality of members’ lives and accommodate their immediate and long-term needs simultaneously.
An employee benefits provider can support employer-sponsored retirement funds with information and insights when reviewing the benefit design and engagement plans of their funds.
The additional support that an employee benefit provider with an integrated and holistic offering can present can help members get over day-to-day hurdles – emergency savings, health needs, education – that could derail them from meeting their long-term retirement objectives.
This could be something as simple as misunderstanding retirement benefits and the options at a member’s disposal. Helping members understand the total picture of what’s on offer and what’s at stake throughout their individual life journeys can go a long way in guiding better decisions at the right times to ultimately improve outcomes.
Starting a new job is a big change. You may need some help to make good decisions as you start your new job. Even small financial decisions you make now can affect your ability to reach your goals. You are planning for a critical time in the future. Ensure that you are getting the right foundations in place today, holistically.
This is the most opportune time as any to rethink how you have approached your employee benefits.
Penelope Gregoriou, technical investment specialist at Alexforbes