The longevity resulting from improved preventative and remedial care has had unintended consequences for retirement.
This is according to Fred White, head of Balanced Funds at Sanlam Investment Management (SIM), who said that longevity is a growing problem in South Africa and is causing shortfalls in retirement.
To illustrate this issue, White cited data provided by Sanlam’s actuarial team on the growing problem.
It’s data shows that a male born in 1967 can expect to live to age 91.
“A female will live even longer. On average, we need to prepare for someone born in 1967 to live up to age 95 years.
He added that for many employees, their company retirement date is set at age 60.
Assuming that one starts working at age 25 after a few years of studying, 35 years of working life have to provide for 35 years of retirement that is a daunting 1:1 ratio, White said.
“So, if you’re not getting a real return, the reality is you need to live off only half your salary while working and save the other half to start living off from age 60.
“And you have to be satisfied that at some point in the future you’ll have to start living off the same level of income as when you first started working. Or you’ll be facing a shortfall,” White said.
He said that one of the key ways to avoid a shortfall is by investing in growth assets.
“Investors choose balanced funds not for the same solution as absolute return funds. They come to a balanced fund because they want growth,” he said. “That’s why we will, on average, have a bias to growth assets.”
White said that despite most growth assets trending sideways over the most recent four years, over the past 13 years growth assets have provided significant outperformance versus fixed income assets (and that includes the poor performance of the past four years and the drawdowns of the great financial crisis).