The 10X Investments Retirement Reality Report 2021 juxtaposes the belief of the young that they can leave saving for retirement until some undisclosed point in the future with the reality of older generations, who are staring down the barrel of not having enough money to preserve their lifestyle in retirement.
10X’s fourth annual Retirement Reality Report is based on findings of the 2021 Brand Atlas Survey, which tracks the lifestyles of the universe of 15 million economically active South Africans (those living in households with a monthly income of more than R8,000).
The data are weighted to reflect the profile of this universe as defined by Unisa’s Bureau of Marketing Research in their 2019 Household Income and Expenditure report.
Not much has changed since last year’s report in terms of how long people think it takes to save for a decent retirement.
Half the people surveyed (48%, up from 46% last year) 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.
Plug some basic numbers into the 10X Investments retirement saving calculator to see how things are looking for you.
The difference between saving for 30 or for 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.
Thanks to the benefit of compound growth, the money saved in the first decade or two of saving keeps growing over time, with growth piling on growth, and eventually making up the lion’s share of retirement money.
But it seems that so many of us must learn our lessons the hard way.
The RRR21 found that whereas around 35% of respondents under 35 believe that retiring below age 60 is achievable, only 4% of over 50s consider this realistic.
Similarly, whereas only 46% of those aged between 25 and 49 expect to work past the age of 64, 71% of people 50 years and older 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 South Africa, which has the highest unemployment rate in the world.
Can you afford to delay?
The later you start saving for retirement, the more you are required to save. The table below shows the percentage of gross monthly salary required to save for retirement based on the age you start investing.
|Starting age||% of salary required to save|
Calculations assume a retirement age of 65, a 60% replacement ratio at retirement and a 10% nominal investment growth rate.
Someone starting to save for retirement at age 25, for example, is required to contribute only 14% of their gross salary to a retirement fund.
However, delaying just 5 years until age 30 will require 19% of your gross salary – that is nearly 40% more.
Start early, save diligently and stick to the plan to ensure a comfortable retirement and avoid becoming a statistic in the 10X RRR.
Starting early and saving consistently are the key pillars to success. So, too, is keeping fees down. Seemingly small regular charges against savings compound to leave a large hole in pensions.
In the context of a consistent 40-year savings regime, for example, someone paying 3% in fees rather than, say, 1% pa, receives almost 50% less money at retirement.
Every year, the number of people who do not know how much they are paying away in fees, as shown in 10X’s Retirement Reality Reports, continues to surprise.
Even if it did improve in the 2021 edition to 41% (from 49%), combined with the number who think there is no fee at all, more than half of those people who say they have a plan of some sort (56%) seem to be very much in the dark on what they are losing to costs.
Retirement savers or, indeed, retirees who want to know what it really feels like to pay no fees can take advantage of 10X’s offer to anyone who opens a new retirement annuity, living annuity or preservation fund during this month (November 2021): they will not pay a management fee for six months.
This offer includes those who are transferring an existing product from another provider to 10X. After six fee-free months they will start paying 10X’s famously low fee. Please see Ts&Cs Apply online.
Knowing what something costs is key to understanding its value, even more so in the case of a long-term investment, where the effect of high fees compounds over time.
If you are not sure what fee you are paying in fees on your retirement savings fund ask 10X to do a free, no obligation cost comparison.
The full 10X Investments Retirement Reality Report 2021 is available here 10X South African Retirement Reality Report.
By Kelin Pottier
Kelin Pottier is Product Development Specialist at 10X Investments.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250)