Retirement conundrum

CONCEPT CHANGE: FUNDAMENTALS STILL VITAL

Longevity is turning the traditional concept on its head. Moneyweb

Many people don’t have enough money to maintain their standard of living in retirement and although they may still like to work, they may not be able to.

A recent Alexander Forbes survey found the average retirement fund member would only be able to replace 28.8% of their last salary when they retire. For every R10 000 earned before retirement, they’d get R2 880 as a pension.

Foundation Family Wealth’s Sunél Veldtman says the western way of thinking suggests people only have financial independence if they can look after themselves.

“The fact is that in the future, that picture of retirement also will change. Very few people will be able to look after themselves from what I’ve seen out there,” she told attendees at Moneyweb and Liberty’s Retire Well Masterclass. Veldtman says if South Africans consider financial freedom as being completely independent, most people will fail and this notion will have to be challenged. “We need to think about that: what are the creative ways that we can still think of ourselves as successful and still enjoy our lives … but actually co-depend on each other.”

Apart from pressure to support an extended family, South Africans also place a premium on education. People are sending their children to private schools or extra lessons which may put a significant financial burden on families. Many people in their 50s and 60s (the sandwich generation) support children and parents.

“‘My children want to start a business.’ ‘My wife’s sister needs an urgent back operation. She is not on medical aid.’ Those are the real questions that people have that really impact their retirement.”

Gerald Mwandiambira, South African Savings Institute acting CEO, says while Africans have always embraced the concept of common wealth, the current retirement system essentially forces individuals to save for themselves, even despite family pressure and ‘black tax’.

“Why can we not design a retirement product which creates an annuity flow for a group of people, because that is how it has always been. Why must retirement focus on the individual? Why can we not have a family retirement policy?”

Confronting challenges

Private Wealth Management financial planner Francois le Roux recalls a visit from Oxford University Professor Sarah Harper, a longevity expert who warned that the current generation of British people wouldn’t enjoy the same standard of living as their parents.

Britain increased its retirement age a few years ago.

“The fact is that the tendency to retire earlier, the tendency to live longer, is a huge challenge,” he says.

However, while the concept of retirement is changing, the fundamentals remain important, Le Roux says. The amount people save, how long they save and their investment returns remain the three most important factors to consider, but only the amount saved (and preserving it) is really within people’s control.

“It is vitally important – even if you start small – to start earlier sooner than later. It is a lifelong process.”