Two out of three of us are not saving for retirement

Two out of every three South Africans have no retirement plan and the number who are confident they have a well-executed plan has declined from 7% to 6% over the past year.

This aligns with the oft-quoted statistic from Treasury papers that only 6% of the country’s population are on track to retire comfortably.

The latest Retirement Reality report by financial services provider 10X Investments surveys the South Africans who should be saving for retirement and suggests that the retirement crisis has worsened over the past year, with even fewer people preparing for retirement than previously.

“There has been an increase in the number of people who say they don’t have a retirement plan and a decrease in the number of people who feel good about their retirement plan,” Steven Nathan, CEO at 10X Investments, explains.

The report by 10X, in collaboration with Brand Atlas, is based on online surveys among 10,780 economically active South Africans with a monthly income in excess of R7,600.

More than two thirds or 67% of respondents in the survey indicated they had no retirement plan, or just a vague idea of one — a five percentage point increase from the number reported in 2018.

When those who reported they had no plan were asked why they had no plan, about 55% said they did not have enough money to save and 36% said it was not a priority in their lives right now.

The first step to securing your future wellbeing is realising that retirement saving is not a discretionary expense or luxury item but a necessary long-term investment, according to Chris Eddy, head of investments at the disruptive asset manager.

Women are flagged as being the most vulnerable when it comes to retirement savings, following the global trend of saving less for retirement and investing their savings less aggressively. The report found that 72% of women either don’t have a retirement plan at all or have a vague plan, compared with 63% of men.

“When we talk about the gender gap we usually think about inequality in wages or lower representation of women at board level. The reality is that at retirement, things are going to get even worse,” Mica Townsend, business development manager at 10X Investments, says.

Townsend suggests that aside from starting early in their saving for retirement, women should also take on more risk and make their investments where they will see high returns over a longer period.

The retirement crisis is a global one, with people facing similar challenges globally when it comes to investing for their future.

“A large number of people believe they can set themselves up for a decent retirement in a short period of time, 24 years or less, therefore leaving it until too late. People also often cash out their funds when changing employers, thinking they can make better investments elsewhere,” Nathan says.  

“The formula for retirement saving success is really quite simple: start saving early, preferably at the beginning of your working life, save 15% of your gross earnings, and invest those savings in a well-diversified high equity fund,” Eddy adds.

Nathan says that keeping track of the fees you pay towards your retirement fund is essential to ensure you see returns that will sustain your lifestyle at retirement.  

“Half of the respondents in the survey with a retirement plan did not know what fees they paid. For your plan to be effective, your fees should be 1% or less a year over the 40 years,” Nathan says.

If you are one of the lucky few that has an employer contributing towards your retirement savings, the 10X team suggests getting involved and engaging your employer regarding the company’s pension fund by asking the right questions —  such as, what your income in retirement is likely to be and how much you are paying in fees.

The Financial Planning Institute says understanding your financial position today is an important piece of your retirement saving puzzle as it helps you understand your needs and puts you in a position to manage and sustain your lifestyle throughout your working life and well into retirement.