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.
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.
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.