Planning for retirement is no longer a luxury, it’s a necessity. Yet, for many South Africans, the gap between what they have saved and what they need to retire comfortably is growing wider.
A survey by Credit Suisse revealed that while nearly 80% of South African retirees receive a pension, it replaces only 19% of their last salary, far below the 59% average among OECD countries. With inflation and economic pressures increasing, this gap is becoming more pronounced, leaving many unprepared for their golden years.
The earlier you start saving for retirement, the more you benefit from compound growth. Delaying savings can significantly reduce the funds available when you need them most.
The Snowball Effect of Inadequate Savings
According to Cogence, more than nine out of ten South Africans cannot afford retirement, often relying on their children for financial support. This “sandwich generation” phenomenon impacts not just retirees but also younger generations, creating a cycle of financial stress.
Saving for retirement is challenging, especially when daily expenses and debt repayments consume a large portion of household income. However, delaying retirement savings only increases the risk of financial insecurity in later years.
Living Longer Means Saving More
Advancements in healthcare mean that people are living longer, healthier lives. While this is positive, it also means that retirement savings need to last longer. For example, data from Vitality shows that South Africans who adopt healthy lifestyles can expect to live up to 83 years, adding to the challenge of ensuring financial stability throughout retirement.
Longevity is both a blessing and a financial challenge. Ensuring that retirement savings last through extended lifespans requires disciplined saving and strategic investment planning.
Navigating Financial Risks
The shift from defined-benefit pension schemes, which guaranteed a set income, to defined-contribution plans has placed investment risk squarely on individuals. Combined with market volatility and global economic uncertainty, it’s more important than ever to have a robust financial plan.
This is where financial advisers play a key role. By working closely with clients, they help set realistic savings goals, select the right investment strategies, and ensure that clients stay on track. GrowthHouse, for example, partners with clients to navigate these challenges, offering personalised advice that aligns with their long-term financial goals.
Health and Wealth: Two Sides of the Same Coin
Good health is essential for a secure retirement. Healthy individuals tend to earn more, save more, and spend less on healthcare, allowing them to build stronger retirement funds. They can also remain in the workforce longer, whether full-time or part-time, extending their earning years and reducing the financial pressure on their savings.
Cogence, a leading discretionary fund manager, integrates health and financial data to create more accurate retirement plans. By considering both longevity and savings behavior, Cogence helps advisers provide tailored advice that improves long-term outcomes.
The Bottom Line: Start Planning Today
While the challenges of saving for retirement are real, proactive planning can help individuals achieve financial independence. By working with knowledgeable financial advisers, South Africans can take control of their financial future, ensuring a retirement that is both comfortable and secure.
After all, the decisions made today determine the quality of life tomorrow. The future may be uncertain, but with the right planning and advice, a secure and comfortable retirement is within reach.
* Nel is a technical head at Life and Invest.
PERSONAL FINANCE