5 out of 10 South Africans do not have a retirement plan according to research. They have zero savings for retirement. A significant majority of our population hasn’t planned for life after work. People are further unable to save and prepare for the imminent future. Additionally, for many South Africans, retirement may appear different in 2022 than it has in years past. Numerous workers are forced to retire before they want to. Sometimes it’s involuntary or due to layoffs. Salary reduction over the past two years ago has added a deep dent in many retirement strategies.
According to a 2019 Employee Benefit Research Institute (EBRI) survey, nearly half of retirees left the workforce before their target retirement age. Planning has never been more crucial. You will likely exit the workforce before your desired time.
The damage caused by Covid-19 has significantly slowed real returns on investments. The rising cost of living means that people must now save more than they previously scheduled whilst they struggle to make ends meet.
How could you best prepare for retirement during this period?
A report from Genesis Analytics in partnership with the Financial Sector Conduct Authority (FSCA) showed that 9 out of 10 South African retirees could not maintain their standard of living before retirement, and two-thirds of members have less than R50,000 in their retirement fund. This reality is more visible for private sector workers who mostly don’t have access to retirement products like public servants.
It gets even scarier when you contemplate that life expectancy is increasing and so the vast majority of South Africans will have to rely on friends, family, and the state to survive old age – never mind live comfortably and enjoy their retirement. This is a recipe for generational conflicts and an unending cycle of abuse for many elderly people.
- Determine the kind of retirement you want.
Many philosophical takes have emerged over the recent years about when one should retire. The FIRE movement (Financial Independence, Retire Early) gained popularity around 2010 with disruption-orientated millennials who want to retire before the age of 46.
FIRE is achieved through the aggressive saving of up to 50% or more of your income – far more than the standard 10%-20% contribution rate. We are all aware that saving 10% is already hard, now imagine saving half of your income. The long-term results, however, are very beneficial. The FIRE plan, although appealing, may not be practical for all of us. And one needs to work out their appropriate retirement plan.
- Identify when you want to retire, then calculate how much you will need to have saved to retire early.
- Sygnia Limited advises that adding up all your current monthly expenses and then multiplying that by 300 (adjusting for inflation) will help determine the amount of money you need.
- It is not too late to start today.
You can never start envisioning your retirement too soon or obtain advice for retirement too early. Even if you think your goals might shift in the years ahead, dreaming about them today gets the conversation started and enables you to plan.
Retirement is expensive. Experts estimate that you will need 70 to 90 per cent of your pre-retirement income to maintain your standard of living when you stop working. This is a pipe dream for many South Africans. According to Alex Forbes’s research, an average person can replace just 31% of their income with retirement savings, meaning that after working for many years, the majority will have to live on less than a third of their pre-retirement income. If you fail to plan, you are planning to retire and eat toasted sandwiches and tin fish to survive.
- Automate your plan
We all think that we can manage our finances exceptionally well like professional accountants. However, the sad truth is that we can’t and even professional accountants need assistance to make better personal investment decisions. Automation removes all unnecessary hurdles and further simplifies your ability to contribute to and manage your retirement fund.
Automation may include setting a debit order that goes towards your retirement fund without you needing to always process the transaction. This will improve your consistency and further force you to manage your finances and debt properly.
A new report issued by the Modern Markets Initiative, a non-profit education and advocacy organization for innovation in today’s markets, found that automated trading technology has ensured investors have 30% more in lifetime savings, as compared to the pre-electronic trading era before market automation. Automation has reduced the personal and business costs of investing. It’s a great era for saving and maximizing your money. Even in volatile times, investors can reallocate capital as needed in the market. Automation empowers you to be agile.
- Diversify your savings
“Many financial advisors recommend that you diversify for your own protection. What they fail to tell you is that it is also for their protection. Since most financial advisors cannot tell you exactly which stock or mutual fund is a great investment, they tell you to buy a bunch of them.” Robert Kiyosaki, Author of Rich Dad Poor Dad.
Diversifying your savings is important for continued growth, success, and trust between investors and managers. No one has all the right answers, life is uncertain and one must prepare for all surprises. Your savings plan towards retirement should ideally include a fixed contribution towards a retirement fund, stocks, equities, real estate, bonds, and International Securities.
Diversifying your savings does not need to be complicated. Lay Up supports you on your everyday saving journey. Merchants can diversify their income stream by opening digital Lay-By channels. Calgro M3, a JSE-listed entity, owns multiple memorial parks across South Africa. Calgary needed a way to enable its customers to buy burial sites using interest-free instalments with LayUp’s Lay-By and Recurring Billing services. Calgro M3 grew sales by over R500,000.00 within the first 72 hours of completing the integration with LayUp. The highest sale recorded to date for a single plot is R350,000.00. This revenue stretches the retirement opportunities that the company could offer to its employees. Companies that care about their employees diversify their income stream to enable increased long-term savings.
- Take advantage of your employer’s offerings.
If your employer provides you with retirement benefits, it is important for you to participate because this could be another way for you to reach your retirement goals. There are additional tax incentives for those who save towards their retirement package. 10X investments elucidate that, “You can claim tax relief on contributions too (up to the lower of 27.5% of taxable income or R350,000 per annum)”. The more you contribute towards your retirement the less tax you pay. This makes investing in your retirement one of the most efficient ways to save.
- Reduce your debt.
The most efficient way to save towards your retirement goals is to reduce your debt and expenses. This will give you access to more disposable income. Try to avoid piling debt on your credit card by using alternative interest-free payment methods. LayUp supports consumers with automated recurring bills that can be paid at any time without hidden charges. Digital lay-bys give you access to true financial freedom because you can purchase your favourite items whilst still saving enough money for your retirement.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice.
- Skinner, Jonathan. (2007). “Are You Sure You’re Saving Enough for Retirement?” Journal of Economic Perspectives, 21 (3): 59-80
- Author Unknown (2022) How many people can retire comfortably in South Africa
Available at https://businesstech.co.za/news/finance/579504/how-many-people-can-retire-comfortably-in-south-africa/ Accessed 2022/09/21
- Sygnia Communications (2022) How to retire at 45 in South Africa
Available at https://www.sygnia.co.za/press/how-to-retire-at-45-in-south-africa Accessed 2022/09/21
- Alex Forbes. (2019) How to retire at 45 in South Africa
Available at https://legalprovidentfund.co.za/wp-content/uploads/2020/02/LPF_Options_on_Retirement_11.3.pdf Accessed 2022/09/21
- Modern Market Initiative. (2022) A report on Market Automation
Available at https://www.modernmarketsinitiative.org/wp-content/uploads/2022/07/MMI-BME-Study-Q2-2022.v7.5.pdf Accessed 2022/09/21 10x Investments (2022) Maximizing your retirement annuity Available at https://fs.hubspotusercontent00.net/hubfs/3390004/Retirement%20Reality%20Report/10X%20Retirement%20Reality%20Report%202021.pdf Accessed 2022/09/21