With an average net pension replacement rate of only 17% of current earnings, many South Africans will face tough decisions or serious adjustments to their lifestyles to survive their golden years.
The 2018 Mercer pension index found that South Africans receive on average the lowest income in retirement among countries with a functioning pension system.
“As a society, we need to address the lack of retirement savings in our country. At the same time we need to ensure that those who are saving diligently are able to benefit from their savings during their retirement,” said Marwan Abrahams, executive GM at Old Mutual Personal Finance.
“The reforms currently being looked at by government aim to address some of the problems with the current system, including low levels of preservation.
“These reforms however are taking place in a strained economic environment with already low levels of savings where consumers are feeling the pinch with VAT and petrol increases,” Abrahams added.
The 2017 Old Mutual Corporate Retirement Monitor saw a dramatic decrease in the number of employees who would preserve their savings should they resign from their position.
According to the survey 35% of working South Africans indicated they would probably cash-in their retirement savings should they have the opportunity, up from 19% in 2012.
“This trend is particularly alarming when you consider that 40% of metropolitan working South Africans and 1 out of 3 Baby Boomers (those born before 1965) have made no formal retirement provision, according to the 2018 Old Mutual Savings and Investment Monitor,” said Abrahams.
“Further complicating the retirement debate is that we are living longer and economic factors such as the rising price of electricity, petrol, education and food are constant reminders of how increasingly difficult it is to make ends meet today, let alone save for the future.”
Abrahams said that people often reach retirement age before realising that there just isn’t enough to carry them through for the next 20 to 30 years.
What is enough?
“If you retire at the age of 65, you need to accumulate between 10 and 14 times your annual salary,” said Abrahams.
“This should help you to secure a retirement income that is at least 75% of your salary.”
For example, if you are 25 years old, earning R10,000 a month and start saving R1,200 a month from today, you should be able to accumulate capital equal to 10 times your annual salary by the age of 65 (taking inflation and increases into account, both at 5%).
However, if you are 45 years old, you need to put away R3,600 a month to reach the same multiple by the age of 65.
“Start today. The time is now. If you find it difficult to spare an extra cent, think of where you can cut back. A DStv subscription costs approximately R900 per month.
“If you save that money instead, with a potential return of 8% for the next 20 years, you could save R850,000.”