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Lynette Nicholson. Supplied
Lynette Nicholson. Supplied
RANDS AND SENSE: 

For many South Africans, retirement is not the life of leisure and financial freedom that it’s made out to be. In fact, most retirees rely heavily on income from some form of work, because their pension is insufficient to support them.

This is the startling result from the 2019 Old Mutual Savings and Investment Monitor, which has included this audience in its research for the first time.

This annual study, now in its 11th year, tracks shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population. Criteria for inclusion of retirees into the study was that they receive a monthly income in some form of at least R15000.

Including this demographic in our study reveals how many households suffer because they are financially underprepared for retirement.

While one’s sunset years are supposed to be a time to kick back and enjoy the pleasures that life has to offer, this does not appear to be the case for many of those we surveyed. What our study shows is that as many as 92% continue to work because they are dependent on additional income to make ends meet.

The monthly contribution from a pension for nearly 80% of people makes up only 27% of their income, with other investments or savings contributing only 7%.

This highlights the importance of proper financial planning in your productive years. For many, a company pension fund is proving insufficient to support them in retirement. It is therefore essential to speak to a professional financial adviser who is able to help you navigate a path that reduces this financial pressure later in life.

The survey results show that half of working retirees are working for an employer, 36% have started a business post-retirement, while 13% have continued to be self-employed or have taken up a position as a consultant.

An important context to the results is that 53% of retirees are still supporting dependent children and/or grandchildren, of which 41% are supporting dependants under the age of 12. Furthermore, 9% of respondents are supporting parents or even grandparents, with those most under pressure being classified as the Sandwich Generation, because they are squeezed between supporting older and younger generations.

It is no surprise then that retirees are cutting down their expenses in order to cope financially.

Those polled are tightening their belts by spending less on clothing and shoes (45%), holiday and travel (41%), eating out and entertainment (39%), electricity and water (38%), entertaining at home (37%) and cellphone airtime (36%).

Similar to the results from the non-retiree market, nearly two-thirds of their income is directed towards living expenses, with 14% going to savings. Understandably, the proportion committed to insurance and medical schemes (10%) is double that of non-retirees.

The vast majority of retiree households (83%) have an emergency fund of some sort. Nearly 80% hold this in a bank savings account, with 35% having this unbanked or in cash. Among black respondents contributing to at least one stokvel per month, 29% have their rainy-day fund in a stokvel.

Most surprising of all is that 14% admit to having a stash of cash of which their spouse or partner is not aware.

The lack of preparedness for retirement could be measured to some degree by only 4% of respondents leaving their pension or provident fund lump sum intact and opting to receive a monthly pension.

This is the ideal situation, as these pensioners should be better equipped over the long-term to survive financially.

The 21% of respondents who took the entirety of their pension in a lump sum are potentially worst prepared for the future. The 75% who took a portion as a lump sum and the rest as a monthly pension made a far wiser decision.

Households that manage to reduce their indebtedness in the later stages of their life are best prepared to see through their retirement in relative comfort.

The 23% who still have vehicle finance should be concerned about carrying this cost in their retirement.

Not only is it prudent to reduce monthly expenses when in retirement, but severe financial stress can be reduced by having a long-term savings plan and outlook.

Lynette Nicholson is research manager at Old Mutual.

PERSONAL FINANCE