According to medical journal The Lancet, more than 50% of babies born in developed countries since 2000 will likely live past the age of 100.
That has massive implications for retirement savings.
Thanks to quantum leaps in medical technology, life expectancies are lengthening, especially for women. Given that most women are required to retire at 60 and more than half of those born since 2000 will live at least another 40 years in retirement, one of two scenarios is likely: they will have to create an income well past 60, or they will have to rely on the government or family.
Women have shorter working years but a longer post-retirement life. Retirement always seems such a long way off, but it creeps up quickly. Consider the number of pay cheques left until retirement. If you are 35 and have not started saving for retirement, you have about 300 paycheques left from which to build a retirement fund.
For most women, that is an optimistic scenario. Most 45-year old South African women have no savings at all. If that’s the case, your first step should be to see a financial adviser as soon as possible, so you can know exactly what your retirement income will be, says Faeeza Khan, legal marketing specialist at Liberty.
“There are two main reasons for the poor savings rate among women – divorce rates are higher today than in the past, and women traditionally earn less than men. In previous times divorce rates were much lower and women expected to be supported in retirement by their husbands,” says Khan. “But that reality has been radically transformed, and it means women have to start taking responsibility for their own financial futures.”
Here’s another problem unique to women: because they live longer than men, they have a higher chance of running out of savings. They also don’t have their partner’s income to fall back on in the later years of life. All this has had some interesting knock-on effects: many millennials are getting married later than their parents, or plan not to have children, because of the prohibitive costs associated with traditional family life.
Women who have made little or no provision for their retirement are likely to end up relying on their children, or the government, to see them through the retirement years.
How do you stop this growing negative situation?
Always start with financial planning, says Khan. Figure out your goals. Get a financial adviser. Get your expenses under control and make sure the first payment you make each month is to yourself in the form of 15% of your net salary. Use any bonuses or other cash windfalls you receive and plough these into savings. Bear in mind that there is a tax benefit to retirement saving: the South African Revenue Service (Sars) subsidises your retirement savings at 45% if you earn at the top marginal income tax rate.
If you haven’t started saving and are in your 40s or 50s, start now. Even R100 here and there will make a difference. Bear in mind that R500 put into a tax-free savings account will grow into a meaningful sum of money through the power of compound interest.
Another overlooked aspect of retirement planning is the preparation of a will. Most people put this off as long as possible but are forced to confront it when they get a health scare. “A will is not a death omen,” says Khan. “It is something we all should have and is very simple to prepare. To be a valid will it must be in writing, written by a person over 16 who is of sound mind, and it must be witnessed. If it is signed with a thumb print or mark, it needs to be witnessed by a commissioner of oaths.”
The main reason for having a will is that it allows us to specify how our assets are to be distributed. Without a will, the law will distribute the assets to the spouse, children or parents. This sounds fine in practice, but what if the couple is divorced? In that case, foster children don’t qualify but adopted children do. The law tries to be as fair as possible by distributing assets to the blood line family. Another reason for having a will: you can nominate guardians for your children, and can create a testamentary trust in the will for the benefit of minor or disabled children.
“This is why finding a good financial adviser is a great starting point for women,” says Khan. “Because of the financial pressure they face in this day and age, the earlier they start saving the better. Women in their 40s or 50s who have not yet started to save for retirement should confront the matter. Begin with a financial adviser, and start developing a culture of saving in the right way for you.
“This is more important than worrying about what kind of retirement products are best for you. Just make a start.”
Brought to you by Liberty.
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. The writer although an appointed representative of Liberty Group Limited, is not allowed to sell financial products. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services. Liberty Group Limited is a registered Long-Term Insurer and an Authorised Financial Services Provider (FAIS no 2409).