South Africans have a three-year retirement problem
The latest Sanlam Benchmark Survey shows that many South Africans tend to only start planning for retirement three years before they stop working.
Sanlam’s 45th survey of its kind showed that South Africans believe they should start planning for retirement around 35.
However, on average, they seek financial advice only about 20 months before retiring. They only start engaging with their retirement fund 3.4 years prior to retiring.
Sanlam said that many of the decisions that shape retirement outcomes have already been made by this point.
By then, many of the decisions that shape retirement outcomes have already been made, with only 57% getting professional advice.
Kanyisa Mkhize, Chief Executive Officer of Sanlam Corporate, said that retirement confidence is not built in the final years before retirement, but over decades of work.
During their working lifetime, people will make a series of changes to their retirement plans when they change jobs, increase contributions and manage debt.
“Retirement planning also does not stop when someone leaves work,” said Mkhize.
“The first few years after retirement are critical, because that is when a lifetime of savings is tested against the reality of living costs, healthcare needs and longevity.”
Mkhize said that the benchmark shows that people understand that they should start planning, but a very difficult economic environment makes it harder for many to retire.
Prior to retirement, many South Africans fail to build financial security while navigating job moves, rising living costs and growing debt. In retirement, decisions made during a career can not be undone.
Burn through their savings
Pensioners who take a cash lump sum at retirement are now also depleting their funds, on average, within just 14.6 months, a decline from the 30 months reported between 2011 and 2016.
Within 4 to 5 years of retirement, half of retirees can no longer maintain their pre-retirement standard of living.
One in three experiences financial strain, and 47% carry debt into retirement. Healthcare is the main driving cost.
Although 33% of retirees remain on the same level of private medical cover, 44% have either downgraded their cover or abandoned private healthcare entirely, relying on the state.
The benchmark also showed a series of changes across generations, with younger South Africans becoming more conservative in their financial outlook.
Nine in ten said that they would rather have guaranteed retirement income than potentially higher investment returns.
Many are also navigating career interruptions, debt and short-term financial pressure, which makes long-term saving difficult.
Generation X, those aged 46 to 61, traditionally seen as in their peak earning years, is bearing some of the country’s greatest financial strain as they support their children and ageing parents.
While Generation X is also approaching retirement, it often carries significant debt. “The old assumptions about age no longer hold,” said Mkhize.
“Young people are looking for certainty, people in mid-life are under unprecedented financial pressure, and many retirees continue working because they need to.”
“Retirement planning has to reflect the way South Africans actually live today, not the way they lived twenty years ago.”
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