Recent Stats SA figures put life expectancy in South Africa at nearly 72 years for women and 65 for men. Henk Appelo, product development actuary at Liberty, says not only do women live longer than men, they tend to marry older partners. “This means women are likely to outlive their male partners by several years, and should plan for this.”
Life expectancy figures are climbing, and a better understanding of anti-ageing science means many women in their 20s today could live past 90. Are they preparing for this, will they have the income they desire once they have retired?
Generally speaking, we have found that women are ill-prepared for the future that awaits them in terms of extended life and better health, says Appelo. More than 60% of the post-retirement products at Liberty are owned by men. This means that many women are dependent on the money their partners have accumulated.
Writing in The Conversation, Jane Falkingham, dean of the Faculty of Social, Human and Mathematical Sciences at the University of Southampton, says the decline in mortality and associated improvement in survival is one of the great success stories of the 20th century.
Life expectancy improved by 30 years over the last century, equivalent to three years every decade. “These improvements in life expectancy reflect advances in medicine and public health, as well as rising standards of living, better education, improved nutrition and changes in lifestyles,” says Falkingham. “The concept of old age used to mean around 65, when pensions are normally paid out. But people are living well into their 70s in relatively good health, and the span of a lifetime is being extended with each passing year.”
Appelo says that with people living longer, the need to save has never been more urgent – particularly for women. “I say when saving, plan like you’ll live forever, and invest accordingly. In other words, build up your capital and make sure your investment strategy is appropriate.”
Let’s look at the reality facing the average person buying a living annuity (a product used to draw an income from your retirement savings) today. The average person draws 6 to 8% of their retirement savings every year. For a retiree to maintain this level of income, their investment would need to grow by 14 to 16% a year, which is a tall task if you look at the current investment landscape. Why? Looking at estimated numbers – 6 to 8% for income, add inflation of 5%, add the cost of the product of 1.5%, and the cost of financial advice of 0.5% – this gets you to a required growth rate of 14 to 16% per year to keep up. The reality we are seeing is that the investment strategies of many people don’t align with their need for income. The average person in this situation is trying to invest to protect their capital and not to maximise their growth. This means the investment strategy misses out on growth in order to keep the level of the investment from fluctuating too much.
Are women responding to this message? “Women prioritise differently to men,” says Appelo. “In their twenties, their goals are very different to women in their thirties, when the financial concerns of raising a family become a primary concern. In South Africa, most people are poorly prepared for retirement. Thinking about women specifically, the evidence suggests that they are poorly prepared for retirement – and are outlasting their partners.”
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