If you want an income that lasts in retirement, don’t eat the marshmallow. What does this mean? It means being able to say no to an unnecessary purchase today on behalf of a greater prize – financial certainty and dignity when you retire, says Twané Wessels, an actuary at financial services group Just SA.
A commonly referenced study conducted by Stanford University offered children a choice of having one marshmallow right away, or two marshmallows if they waited 15 minutes. In follow-up studies, researchers found that the children who could wait the 15 minutes for two marshmallows tended to do better in life.
The same holds true of people saving for retirement. Those who can resist spending money on too many ‘wants’, and implement a disciplined saving habit instead, end up having more capital in retirement and therefore a higher income that can last them for life, said Wessels.
You need a lot of money to retire comfortably. “Let’s say you’ve saved R1 million for your retirement. While this seems like a lot of money, it is important to consider how much monthly income this amount can get you. For example, a 65 year old female is able to get a life annuity that will pay an income of about R6,700 per month, which will increase in line with inflation.
“And for every additional R50,000 saved, she could add about R330 to her monthly income in retirement, for life. Save an extra R100,000, and she’s getting nearly R700 more a month. One marshmallow today, or two tomorrow and for the rest of your life?”
There are many reasons why South Africans don’t save enough for retirement, said Wessels. Some people simply can’t afford to save anything. But others simply have poor savings habits. It is common to find many South Africans living beyond their means.
“In the 2022 edition of the Just Retirement Insights study, we found that a third of the people surveyed have no financial retirement plans. When asked ‘why not’ 33% said they would start planning when they were closer to retirement, 28% said they don’t know and 26% said they don’t have enough to plan properly,” said Wessels.
“We need to help South Africans understand why it is important to behave more cautiously with their money,” said Wessels.
“I remember many quarrels as a teenager with my dad, when I wanted a new pair of Diesel jeans, or a new pair of CATs sneakers, or a new Walkman. I might be giving away my age here.
“His answer was often, no, there is no money. I couldn’t understand this as I knew he was saving a lot of money each month. Today, I understand, and I’m grateful, that we didn’t “eat the marshmallow”. Because today, he is enjoying a relaxing and comfortable retirement, and is not dependent on me or my siblings.”
There are many things that money can’t buy; but it’s good to be reminded of something that only money can buy – a sustainable income in retirement, said Wessels. “Delay your gratification before you retire and have your marshmallows in retirement.”