While the widening gap between expectations and the financial realities of life in retirement is an issue that faces people across the globe, the situation appears to be particularly dire for South Africans, according to the Schroders Global Investor Study 2018.
The survey, conducted by global asset management firm, Schroders, questioned 22,000 wealth investors across 30 countries, including South Africa.
The study found that while non-retired South Africans’ expectations are in line with the global average when it comes to the percentage of their retirement income they expect to spend on basic living expenses (34%), the reality for South African retirees is that they require nearly 60% – which is 10% higher than the global average for retirees.
Lesley-Anne Morgan, global head of defined contribution and retirement at Schroders, said that this is particularly worrying in the current environment of low returns and increasing inflation.
“There is a real danger that South Africans are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement.”
South Africans closer to retirement – those aged 55 or over – may also be in for a shock by expecting too much of their retirement income, said Morgan.
“According to the survey, South African retirees are receiving a much lower proportion of their final salary in retirement (59% on average) than people approaching retirement think they will need to live comfortably in their golden years (80% on average).
“This contrast is far greater than what is being experienced globally, on average, where retirees predicted that they will need an average of 74% of their current salary or income to live comfortably in retirement, but are receiving 61% (on average) of their final salary annually.”
Perhaps an indication that their final income may not stretch far enough, South African retirees are continuing to invest significantly, allocating 27% of their entire retirement savings to investments, said Morgan. “This contrasts significantly to those yet to retire, who only anticipate investing 10% of their retirement savings.
“While saving late is better than not saving at all, unfortunately, leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap,” Morgan said.
In South Africa, 65% of respondents believe their retirement income is sufficient, versus 35% who do not.
On average across all regions, non-retired people feel that they should be saving two per cent more of their annual income for retirement than they are currently, in order to afford a comfortable life when they retire.
The greatest disparity between current savings and savings perceived as necessary at a country level is seen in Chile and South Africa, where people are saving, on average, 6% less for retirement than they feel they need to in order to live comfortably.
South Africa sees the greatest gulf between what non-retired people expect to allocate to investments (10%) and how much retirees actually have allocated on average (27%). Taiwan is the only country experiencing the reverse trend, where the retired allocated five per cent less to investments than those yet to retire expect to.
South Africa, Sweden and the US stand out as locations where non-retired people are at risk of significantly underestimating the proportion of income taken up by the cost of living in retirement.
A recent BusinessTech poll, which drew almost 6,400 responses, found that most South Africans (45%) started saving for retirement in their 20s, while 20% said they started in their 30s, and 16% started after the age of 40.
Notably, however, 19% said that they were not saving for retirement at all.