Over the past decade or so, there have been concerted efforts by the financial services industry and regulators to encourage South Africans to focus more on saving for retirement. But then the Covid-19 pandemic hit us, which appears to have reversed much of our progress.
This is evident in the findings of the 10X South African Retirement Reality Report 2021, released this week. Tobie van Heerden, the chief executive of 10X Investments, notes: "The pandemic has exposed our society's fault lines and magnified its vulnerabilities, especially the lack of safety nets for those who, in the past, were just able to hang on."
The report is based on the findings of the 2021 Brand Atlas Survey, which tracks and measures the lifestyles of economically active South Africans (households with an income of more than R8 000 a month) through online questionnaires.
I like to think of saving for retirement as building wealth over the long term. The term "retirement" is becoming less relevant in its traditional sense as ways of working change. Many people voluntarily go on working many years after the official retirement age.
The crux is that a well-planned nest egg gives you the freedom to dictate your life's journey, whether that is at 50 or at 75.
When you do reach the age at which it is physically impossible to work any longer, your options suddenly become very limited, and if you aren't self-sufficient, you will be forced to rely on your children or on the state.
However, if you're battling right now just to get by from day to day, especially in the fallout from the pandemic, you're likely to spare little thought for the future.
This, it appears from the report, is the issue at present: 64% of people surveyed (up from 56% last year and 55% the year before) said they simply cannot afford to save because there is nothing left at the end of each month.
The survey found further that 50% of respondents don't have any type of savings plan. This is up from 46% in 2019.
On the other hand, there has been an increase among those who have implemented a thought-through plan, from 6% to 8% of respondents, indicating that the minority who can afford it are giving their retirement savings greater priority.
The report also indicates that working people who are contributing to a retirement fund generally know little about their fund or how it works.
More than half of the respondents who had a retirement savings plan of some sort were current members of a corporate retirement fund or had at some point belonged to one. Van Heerden notes that 60% of those people “said they knew little or nothing about their fund, which highlights the missed opportunity of actively engaging employees in the savings process”.
One green shoot of hope was that the number of people who said they couldn’t be bothered to know more about their fund declined from 11% last year to 7%, with many saying they wished they knew more.
Do you know how long it takes to accumulate enough on which to retire? The report suggests that many people underestimate the length of time: 27% of respondents believed they could save for their retirement in under 20 years.
The reality is that even saving for 30 years may not give you enough. 10X calculated that, earning a net real return of 5% (after fees and inflation), saving for 40 rather than 30 years will deliver a retirement income that is 83% higher.
Many people are relying on working for a living into their old age. Three-quarters of survey respondents (74%) said they would need to generate an income after retirement age. However, as Chris Eddy, head of investments at 10X, pointed out in his presentation on the report, South Africa has the highest unemployment rate in the world, with the official number at 34%, and the figure as high as 64% in the under-24-year age bracket. "With the many people excluded from employment trying to break into the job market, those fortunate enough to be employed have very little chance of working past their retirement age if they haven't prepared, and need to supplement their retirement savings."
The report sums up our situation as follows: “The pandemic brought home that what many of us tend to take for granted – our health, employment and income, but also the freedom to work, to gather and to travel – are not cast in stone. The hardships of the past 18 months underline that the need to create resilience in our communities and to build sustainability into our lifestyles is beyond urgent. Saving and investing is one way for individuals, families and economies to create wealth and build resilience.”
For the full report, which covers many more aspects of retirement savings than I have covered here, go to https://resources.10x.co.za/retirement-reality-report