Retirement expectations in South Africa vs reality

A significant number of South Africans believe they will continue working for the remainder of their lives, with no plan to retire at all.

This is according to 10X Investments’ latest retirements report, which is based on the 2021 Brand Atlas Survey findings. Brand Atlas tracks and measures the lifestyles of 15 million economically active South Africans – living in households with a monthly income of more than R8,000 –  through online completion surveys.

Of the survey respondents who had retired, 70% said they retired when they wanted to, while 29% were forced to retire ahead of time. Just 2% said they had to work for longer than planned.

“Owing to a relatively small percentage of respondents in the survey who have retired (around 3%), the numbers tend to vary from year to year,” 10X Investments said.

“However, the trend over the years suggests that roughly one-third of retirees are forced to retire sooner than expected, a double whammy for any retirement plan, as more retirement years must be funded by fewer years of contributions and compound returns. For those in formal employment who don’t plan to retire, some may find their employer has other plans.”

The data which focuses on when South Africans plan to retire paints an even bleaker picture, with younger South Africans only having a nebulous idea of when they plan to retire, while older South Africans indicate they plan to work beyond 70 years or not retire at all.

“It is striking that whereas some 35% of respondents under 35 believe that retiring below age 60 is achievable, only 4% of over 50s consider this realistic,” 10X Investments said.

“In the same vein, whereas among the younger cohort (between ages 25 and 49), on average, only 46% expect to work past the age of 64, among those 50 years and older, many more (71%) have wised up to their retirement reality and expect to retire beyond age 64, or not at all. Both sets of expectations seem unrealistic in a country like ours.”

Almost half the people surveyed think they can save for retirement in less than 30 years. The fact that most people think they can leave it late (ie to the final 20 or 30 years of work) is a fundamental problem, stated 10X.

What is the difference between saving for 30 or 40 years? In the context of a consistent savings plan, earning a net real return of 5% (after fees and inflation), saving for 40 rather than 30 years will deliver a retirement income that is 83% higher. Or to put it another way, people who save for only 30 years instead of 40, will have to make do with an almost 50% lower retirement income, the financial services group said.

Most survey respondents (74%, compared with 77% last year) believe they will have to generate some income after they retire. Another 19% are not very sure, leaving just 7% of respondents feeling confident that they are on course for what is increasingly becoming an outdated notion of retirement, based on full financial independence.

Nothing to put away 

Increasingly, the data shows that for the majority, the issue is not one of hubris or ignorance, but of economic hardship: 64% of people surveyed said they simply could not afford to save because there is nothing left at the end of the month.

According to Stats SA’s Quarterly Labour Force Survey for the second quarter of 2021, South Africa’s unemployment rate was 34.4%. Young people (aged 15-24 years and 25-34 years) recorded the highest unemployment rates of 64.4% and 42.9%, respectively.

In a new economic update on South Africa published in July 2021, the World Bank found that the coronavirus pandemic had “exposed structural weaknesses in the job market with young people, particularly facing acute unemployment rates, with incidence twice as high as among older age groups.

The World Bank report found that among 15 to 24-year-olds, 63% are unemployed and looking for work, whereas among 25 to 34-year-olds, this rate is 41%. When discouraged workers are included, unemployment rates are as high as 74% for 15 to 24-year-olds and 51% for 25 to 34-year-olds.

“This means many thousands of people are pushing into the job market as more and more retirement-age people are trying to hold on to work because they just cannot afford to retire,” 10X Investments said.

“This personal misery for many, of course, adds fuel to simmering social conflict. The number of people indicating that retirement saving was just “not a priority at this stage of their life” is still high but in decline: 22% of respondents – down from 29% last year and 36% the year before that – chose this rather dismissive answer.”

That could mean they have lost the “luxury” of choosing to allocate their discretionary spending because they now lack that discretionary spending, 10X Investments said. It could also mean a shift in attitudes towards retirement saving, based on their own recent experience.

“Either way, it is a stark reality check. Hopefully, when the economy recovers and people find themselves having to choose again, they will remember what it was like to have no money and limited choice and take steps to avoid a repeat of that in future.”

Read: South Africans are struggling to pay their bills – here’s how much we owe on our credit cards.