Under-saving for retirement a problem for South Africans

A report by Genesis Analytics in partnership with the Financial Sector Conduct Authority shows that 90% of SA retirees can’t sustain their standard of living prior to retirement.

The Financial Sector Outlook Study 2022 also found that since 2017, the average value of benefits paid out has slightly increased in real terms, averaging approximately R39,000 per month.

The average contribution to pension funds has, however, remained relatively stable at around R900 per month in real terms.

“Under-saving for retirement is an issue in South Africa, as only 12% of the 3.6-million individuals in the retired age group received a form of income in 2020,” reads the report in part.

“More than 90% of retirees are unable to maintain their standard of living prior to retirement and two thirds of members have less than R50,000 in their retirement funds.”

Head of actuarial and product at PSG Wealth, Jan van der Merwe, said we often heard of people who were not saving and investing enough. 

“To minimise the risk of insufficient savings in retirement, the rule of thumb is to save at least 15% of your salary during your working years. This is clearly a daunting task. You are far more likely to succeed if you prioritise investing and allocate money to your long-term goals”

Van der Merwe said it could be challenging to make the necessary adjustments if you were saving less than 15% of your salary for your years in retirement.

“However, delaying saving until you have ‘enough’ money is sure to end in failure. You are far more likely to succeed if you prioritise investing and allocate money to your long-term goals before you find yourself tempted to spend on more pressing needs that life will throw your way.”

He says there are some practical tips one can follow to help you save more.

“The key is to make a start as soon as possible, and to continue to build on that once you have a firm foundation in place. Start saving as soon as possible – even if you can only make small contributions, and gradually increase what you save each year. Adjust the amounts you save annually in line with inflation.

“Keep a record of all the money you spend and compare this to your budget each month – there are a number of apps that can help you keep track of your spending if hoarding receipts is not your thing. This will help you to point out where you need to make adjustments to your spending habits.

"Don’t tryto ‘keep up with the Joneses’. For example, keep your cellphone for a year or two longer, drive your car for a few more years, and limit the amount you spend on the fanciest branded items (such as clothing),” Van der Merwe said.

He said one should always preserve their retirement savings when changing jobs.

“Don’t withdraw your retirement savings when you move jobs. Over time, these small adjustments and sacrifices you make will gradually and consistently add up,” he said.

Tamryn Lamb, head of retail at Allan Gray, said getting assistance in investing in the right product, ensuring that return objectives and retirement savings goals take inflation into account, could go a long way.

“Advisers help investors remain committed to their plan, adjusting only as circumstances suggest it is appropriate. Importantly, they help investors manage themselves with discipline, identifying and understanding how their emotions can lead them astray in the investing process.”  

How often should you update your financial plan?   

“If you are invested for the long-term, tracking your investment too regularly, particularly if you still have a way to go until retirement, may do more harm than good.  

“That said, every investor should review their retirement goals and objectives annually or when there is a big life-change like having a child, getting divorced, or when there is a death.”

mashabas@sowetan.co.za