With retirement season upon us it is time for the annual focus on retirement annuities and tax-free savings. Sadly, this annual focus does trivialise the importance of appropriate planning for retirement as the financial services industry moves into overdrive for what is seen as the industries own “black Friday sale” into what is called the “retirement season”.
Most of the campaigns and messaging that will no doubt be clogging up your inbox focuses on the benefits of retirement annuities and tax-free savings and how the tax man helps fund your retirement. Often, we see this as the opportunity to get some of our hard-earned money back from Sars, specifically as we feel that our tax rands are not working for us so why not get some of it back to work for our retirement?
Even though the messaging and the tax savings may be enticing it probably does very little to address the retirement challenge in South Africa where only 7% to 10 % of people retire with enough money for a comfortable retirement. The Fidelity Retirement Survey and Retirement Mindset report provides some insight into why people don’t plan for retirement, the research is conducted globally and even though this does not specifically focus on South Africa, I suspect that similar research in South Africa will have the same conclusions.
The lack of retirement planning (financial planning) is not only a South African phenomenal, globally only 18% of people surveyed have a retirement plan in place. This is significantly higher than the estimated 6% of South Africans that have a plan in place and that are executing on this.
From the South African research conducted by 10X it seems the reason for most South Africans not having a retirement plan in place is the lack of funds available to save and the mere fact that for most, retirement planning is not, yet, a priority. I do suspect this does miss the deeper insight provided by the international research that I do believe starts unlocking some of the psychological barriers to the lack of retirement planning.
Even though there are some differences across the age groups Fidelity identifies four reasons as to why people do not have a retirement
plan in place as per the table below.
Part of the inertia in staring a retirement plan can probably be attributed to the industry jargon and complexity and often trying to
overcomplicate relatively simple principles. I am always reminded by the words of one of my colleagues that retirement planning is simple,
there really are only three things that you need to do that you can control; invest as early as possible, save as much as you can and work for
as long as you can. This really does cut right to the crux of retirement planning. In refining the retirement plan the fourth key variable is earning an appropriate return, this can get a bit more complex but to start you just need to be invested in a balanced portfolio that is designed for retirement planning.
In getting from inertia into action Fidelity identified several baby steps that respondents believed will get them from inertia into action;
starting to save whatever I can each month and talking to a financial professional rank as the top two ways to get your retirement plan into
motion. Interestingly using online planning tools ranked at the bottom of the list, this is probably explained by the need for personal engagement to help make the this a bit less overwhelming.
If you want to get started on your retirement journey you can find a reputable financial advisor on the Financial Planning Institute’s
website and remember the most important thing is getting started, with whatever you have.
Wynand Gouws is a certified financial planner.