South Africa is currently in the midst of what is widely referred to as a ‘retirement crisis’, which could intensify if the issue isn’t addressed properly soon. After a period of excellent investment returns that have, up until recently, somewhat masked the fact that retirees in living annuities haven’t saved enough, local retirement fund members have now entered a lower-return environment, which will only exacerbate the problem.
Only a small percentage of the population is believed to be in a position to maintain their standard of living in retirement. And, according to a survey conducted in late 2016, approximately 30% of working South Africans have no formal retirement provision whatsoever.
Early withdrawals of retirement savings are considered to be one of the main reasons for this dire situation. And a variety of economic factors may be responsible for this concerning attitude to withdrawals.
Notably, disposable income has come under pressure in recent years, which has resulted in many people falling into debt or struggling to meet their daily needs. Many citizens earn less than R5,000 a month and are in survival mode, and a lack of financial literacy is also arguably an issue, as many people don’t understand the benefits of compound interest, or don’t realise the impact that early withdrawals could have on their future.
Roughly a quarter of the population also doesn’t believe that they will even reach retirement age, and recent changes to the Taxation Laws Amendment Act have caused some people to fear that the government could take their retirement money.
The process of retirement reform is slowly taking its course in South Africa, and compulsory annuitisation in the provident fund space is potentially on the cards. However, as South Africa doesn’t have the option of being bailed out by the fiscus, it is more important than ever that all citizens prepare for their retirement and plan how best to achieve their financial goals.
Here are 5 tips that could help you to avoid being part of this ‘retirement crisis’.
- If you change jobs, don’t just cash in your retirement savings. And even if you quit the 9-to-5 grind, consider not completely exiting the workforce. Part-time work that you enjoy may still bring in a significant sum per month, and will reduce how much you need to dip into your savings.
- Don’t underestimate how long you may live. Due to the prevalence of HIV/AIDS, South Africa may tragically have the lowest life expectancy in the world, but the US Census Bureau has noted a change in prospects for the country. By 2050, the population of people over the age of 65 is expected to jump to 5.6 million, up from the 3.1 million that it was in 2015.
- Factor in healthcare costs. Medical costs will undoubtedly rise each year, so be sure that you have appropriate medical aid, as well as enough savings to pay for any expenses that aren’t covered.
- Don’t ignore major expenses that could affect your monthly budget. These could include foreseeable events, such as helping your children to pay for university fees, but could also include less predictable occurrences, such as needing to fix a car or fly abroad for a wedding.
- Simplify your finances. If you have multiple savings accounts, it may be worth consolidating them so that you have a better idea of your overall asset allocation and can avoid any overlaps. You may also benefit from a revised fee structure or enhanced compound interest.
The retirement crisis doesn’t have to directly affect you, so long as you take some simple steps now to prepare in advance for your future. Don’t hesitate to arrange a meeting to discuss the best ways to ensure you will have enough savings to sustain you throughout what will hopefully be a long and happy retirement.