Picture: 123RF/FLYNT
Picture: 123RF/FLYNT

Most South Africans do not plan for retirement and prefer not to obtain advice from an adviser. Yet retirees will struggle to draw enough income from their retirement savings to cover expenses.

These insights come from the latest survey commissioned by Just Retirement, released this week.

The survey shows that two-thirds of South Africans have not made any calculations of how much they would need annually in retirement, yet they consider themselves to be good at financial planning.

Of the sample of respondents surveyed, only 31% of South Africans have done any calculations on how much they would need annually in retirement, down from 45% in 2015.

The survey confirms, yet again, that people’s expectations of how much retirement income they will receive do not match reality.

The current rand value of the retirement funds of 40% of respondents is less than R1m, 17% have between R1m and R2m, 11% between R2m and R5m and 5% have saved between R5m and R10m. A total of 11% of respondents do not know how much they have in retirement savings.

Bjorn Ladewig, longevity actuary at Just Retirement, says the average rand value of survey respondents’ retirement funds is R1.8m, and the anticipated average monthly income is R12,000. However, a typical couple retiring — for example, a husband aged 65 and wife aged 61, who will receive 75% of the income upon his death — requires R2.2m, or 22% more, to secure that level of income for life, with future increases in income targeting inflation.

Retirees underestimate their life expectancy compared with current trends but are optimistic about their health status, the survey shows.

Although more South Africans (75%) are thinking about their life expectancy now than three years ago (70%) when choosing how to apply their retirement savings, women were not aware that they would probably outlive their male counterparts. 

When asked to what age they believed they would live, men said 83 on average, while women said 79.

Ladewig, however, says the opposite is true. For women, the post-retirement life expectancy is three to four years longer than for men. A 65-year-old man today can expect to live to 83, while a woman can expect to live to 87.

“Unfortunately, living longer brings with it an increased risk of dementia, a degenerative disease of the brain that primarily affects the elderly and is currently on the rise,” says Ladewig.

He cautions that very few people plan for the impact the disease could have on their ability to make sound financial decisions in retirement.

Just Retirement’s survey shows that only 13% of people have thought about dementia or Alzheimer’s, the most common cause of dementia, and have started planning to protect their financial future, he says.

According to the survey, 15% of people have considered they could get dementia but 72% have not thought about it at all.

An increased number of South Africans (89%) cite securing a lifetime income for themselves as important, while 55% of respondents deem leaving an inheritance for their children and grandchildren important.

This is concerning, says Ladewig, considering that most people are not saving enough for retirement in the first place.

“This unfortunately means that running out of money becomes a reality in later years and, as a result, the likelihood of being able to leave a legacy is severely reduced.”