Mil­lions ig­nore the need to pro­vide for re­tire­ment

Sunday Times - - Business Money - By CHAR­LENE STEENKAMP

● A whop­ping 40% of work­ing South Africans do not con­trib­ute to a pen­sion or prov­i­dent fund or a re­tire­ment an­nu­ity fund, and a third of work­ing South Africans rely on the gov­ern­ment to take care of them in their old age.

These alarm­ing sta­tis­tics were high­lighted in the re­cent Old Mu­tual Sav­ings and In­vest­ment Mon­i­tor.

Lynette Ni­chol­son, Old Mu­tual’s re­search man­ager, says the per­cent­age of peo­ple who de­pend on the gov­ern­ment — 32% — has not changed much in the past eight years.

The sur­vey re­veals that the per­cent­age of work­ing South Africans who con­trib­ute to pen­sion and prov­i­dent funds is around 50%, and this per­cent­age has re­mained static since 2010. The per­cent­age of South

Africans who used re­tire­ment an­nu­ities over the past year is 27%, down from 30% the year prior.

Fur­ther­more, one in three baby boomers — peo­ple born be­fore 1965 — have no for­mal re­tire­ment fund sav­ings, which means they have not con­trib­uted to a pen­sion, prov­i­dent or re­tire­ment an­nu­ity fund, she says.

South Africans are go­ing to have to dig deep into their pock­ets to put away money for their re­tire­ment against the back­drop of a gloomy pic­ture for the econ­omy.

Even when the econ­omy does im­prove in the fu­ture, “in­vest­ment re­turns will be lower for the un­fore­see­able fu­ture and sav­ing for in­creas­ing longevity will con­tinue to be a chal­lenge, mean­ing you need to save more”, says Rian le Roux, Old Mu­tual In­vest­ment Group eco­nomic strate­gist.

He says the sav­ings chal­lenge fac­ing South Africans is ag­gra­vated by the fact that many peo­ple re­tire too early. The av­er­age re­tire­ment age in South Africa is about 60, com­pared to the global norm of about 65, he says.

He high­lights a num­ber of in­vest­ment be­hav­iour prob­lems that im­pact neg­a­tively on South African in­vestors’ pro­vi­sion for re­tire­ment. When South Africans do save and in­vest, they tend to ig­nore the risks. In­vestors have a fix­a­tion with short-term mar­ket volatil­ity, which leads to poor longterm in­vest­ment de­ci­sions, and most have no sav­ings goal and there­fore no in­vest­ment plan, he says.

How much to save

When you an­a­lyse your fi­nan­cial sit­u­a­tion, en­sure that you un­der­stand your fu­ture ex­penses, says Le Roux.

“Only three fac­tors will de­ter­mine how to get to the magic num­ber of enough cap­i­tal: how long you save for, how much you save and your in­vest­ment re­turn.”

It is im­por­tant to re­mem­ber that you can con­trol only one of these fac­tors, and that is how much you save.

If the plan­ning is daunt­ing, get ad­vice. Der­ick Fer­reira, the head of prod­uct man­age­ment at Old Mu­tual Per­sonal Fi­nance, says re­search shows that clients who get ad­vice can im­prove their re­tire­ment in­come by up to 31%, com­pared to those who do not use a pro­fes­sional fi­nan­cial ad­viser to de­ter­mine how much cap­i­tal they need at re­tire­ment, whether or not they are on track and — in the event that they are short — how to close the gap.

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