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Covid-19 has led to increased risk aversion among retirees

It may sound ironic, but people are now even more concerned that they may live too long.
Believing they might outlast their savings can prompt people to make rash decisions about their investments. Image: Shutterstock

The number of people who felt “really confident” that their savings would cover their monthly expenses in retirement dropped from 20% before the arrival of Covid-19 to 14% during the pandemic.

According to Deane Moore, CEO of Just SA, their 2020 Retirement Insights survey shows that the pandemic has significantly increased people’s aversion for risk. Where around 40% of retirees in the 2019 survey said they do not want to take any risks, this increased to 60% in 2020.

People are still concerned about the risk that they will live longer than they have anticipated and outlast their savings.

Rash decisions

People are also concerned about investment market crashes, similar to the one seen last year. When people get a fright they tend to make the wrong decisions, said Moore during a 50 Plus-Skills health and wealth webinar.

During the crash last year, a lot of people left the investment market, and when the recovery came they were not in the market and felt the full brunt of the crash.

Another trend that has been emerging is of people who are ‘under-consuming’ in retirement. They may find themselves in the wrong product – and fearing that they will not have sufficient savings, keep holding back. So despite having worked hard all their lives, they are not enjoying their retirement because of the fear of becoming financially dependent.

Living annuities vs life annuities

South Africans have had two general categories of products to choose from to manage their savings in retirement – investment (living annuities) and insurance (life annuities).

Moore says South Africans generally prefer living annuities, which offer more investment flexibility but are in many instances very complex to manage.

The pot of money has to be managed over the retiree’s remaining lifetime and high draw-down rates may increase the risk of surviving their money.

Life annuities offer an income for life and give some protection against inflation. They carry low risk, but are also low in flexibility.

Blended option

Just SA believes in a combination of security and flexibility – and, working closely with various providers of living annuity products, says there is now a blend.

All the elements that are in a life annuity have been turned into an investment option that can be held within the broader living annuity products.

“Within a pot of money that you are trying to manage over your lifetime you are assured that one of the elements in the pot gives you a secure income for the remainder of your life and there still remains some [investment] flexibility,” he said.

Reaction to the pressures

Just SA found last year that 74% of the people surveyed were re-evaluating their risks in retirement, around 50% had sourced another means of income, 32% had asked family or friends for financial assistance, and 32% had dipped into their retirement savings.

Moore says that although people saw this as simply ‘borrowing’ there was a real possibility that it could become a permanent disinvestment.

Lynda Smith, CEO of 50 Plus-Skills, refers to a study by Age Wave that shows the average difference between ‘health span’ and lifespan in the US is 10 years.

This means that if someone is going to die at 90 years their health starts deteriorating at 80. She says she wants to “live long and die short” – as most people do.

Smith says that since we are managing our money to last as long as we do, we can to a large degree manage our health to last as long as we do too.

This means the gap between the lifespan and health span should preferably be as small as possible. However, the coronavirus outbreak globally has exacerbated fear and stress. This has had a massive impact on mental and physical wellbeing, she says.

People are gripped by fear of the unknown, persistent job insecurity and the fear of falling ill. However, as with financial choices, people have choices to regain their mental purpose and to maintain their vision, she adds.

When people are faced with a job loss (or loss of income) they should ask themselves what they can do that they love, what are they good at, how can they get paid for doing it, and what does the world need.

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I think this may have more to do with poor Investment Returns over the past 5 years than the onset of Covid!

There are worse afflictions than covid. The symptoms of the various mental diseases are far worse than a physical disease. For how long can we live in isolation before life itself loses its meaning? For how long should a person avoid social contact at the retirement village, avoid the experience at wine farms or restaurants and live without art, religious, or sports gatherings? Are we pinning our hopes on a vaccine when we should rather focus on improving our lifestyle to strengthen the immunity and use ivermectin as a prophylactic? The virus is not waiting for us at the tea party, the book club or the beach. The virus is waiting for us at the grocery store, where we all have to go regularly.

We should be rational and pragmatic. If we do not avoid refined carbs out of fear of diabetes, then we should not fear covid either. Malaria kills many more people than covid. If we do not avoid the National Parks out of fear of malaria, then we should not avoid the church or the beach either.

How many of the elderly have died alone during lockdown while the relatives are in anguish because they may not visit? This is cruel and inhumane. Life should carry on as normal. Isolation spreads mental disease, while it can’t prevent the virus from spreading. To each his own though.

The majority of citizens already suffers from a mental disorder way before covid even started. This is quite evident from the SA voter results.

Have to move away a bit from the traditional portfolio construction as well.

Added Crypto into the mix. Chopped gold and cash a bit. Lets see.

I think it is the right time to get into construction.

The companies are have assets but they are not working which means you can buy a share very cheaply!

If the anc has not woken up yet then either the local municipal election will be the wake up call or a new political party will be elected in the national election which follows.

It is quite simple. More than 50% of the value of most living annuities is invested in the stock market. During the lockdown the markets fell by nearly 30%. The value of some LA’s dropped by nearly 20%. Of course people who see how their savings drop, will be more negative about the future. If you do the same survey now that the market is at a record high, people will probably be more optimistic.

End of comments.

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