By Colin Horwitz
It is with alarm that I read and hear about what is happening in the Northern Hemisphere regarding Covid-19. The numbers of infection and death are spiking daily and add that to all the rumors flying around in South Africa about going back into lockdown, the cause for concern is real.
As I am busy typing this article a pop-up on my phone has just stated that our President has denied that a move back to Level 3 is imminent. Sigh of relief from me!
I have just received the annual Retirement Reality Report 2020 distributed by 10X Investments. The report is based on findings of the 2020 Brand Atlas Survey which tracks and measures the lifestyles of 15.1million economically active South Africans.
What intrigued me most, is that with all the articles, news in its various forms, documentation distributed by the Financial Service Providers and financial education that is, or maybe I need to rephrase that to, should be taking place in the workplace, more than 60% of those polled said that they knew little or nothing about their employer provided retirement fund or were not interested in it. This is remarkable as quite a large portion of the employees cost to company goes towards these benefits.
Here are some stand out points from the report.
- 49% do not have a retirement plan.
- Nearly 80% of the 46% who said that they did have a retirement saving plan accepted that they would need to keep earning an income after they had retired. Taking our runaway unemployment rate into account, it is hard to imagine how this will be possible.
- Only 6% of those polled said that they have a thought-through plan which they are executing.
- According to StatsSA in their information released in 2019, 49,2% of South Africa’s total adult population of 35,1 million live below the upper-bound poverty line. I am sure that this figure has changed somewhat due to the Covid-19 pandemic.
- As we have been preaching for the last 35 years, retirement planning is a life-long event beginning with your first pay cheque. Yet only 29% of those polled said that they realized that it would take 40 or more years to plan for a comfortable retirement.
- There is a perception disconnect regarding what actual retirement will look like. 75% of the respondents worry about having enough money to live on post-retirement and 77% expect to need some additional income, yet 68% anticipate that they will be able to maintain their standard of living. Obviously, this does not make sense.
- For women it is even worse. According to StatsSA, women earn approximately 30% less than their male counterparts on average. There are three other elements which makes this even worse.
- Careers are interrupted during pregnancy and the child rearing years;
- Life expectancy is longer for females than it is for males and retirement savings will have to last longer;
- In the event of divorce (the South African divorce rate is extremely high), women will often have to cash in their portion of their spouse’s retirement fund to make ends meet;
- Only 2% of the women polled said that they were doing well financially;
- 32% of the women polled said that they saved cash. However only 13% were investors compared to 22% of men. Investing means putting money into a well-diversified, high-equity portfolio;
- 43% of the respondents had never been a member of a corporate retirement scheme and of those who had been and who had left their employment, only 7% preserved their share of the fund;
- Of those who stated that they are on a corporate retirement scheme, only 40% said they had a good understanding of the scheme, 35% said they knew a bit about it, 14% said they had no idea and 11% said they trusted their employer/fund manager to deal with the choices and they had no idea as to what they were.
There is a paragraph in the report that really struck home. It reads “For most, retirement is a vague concept that looms in the distance, mostly ignored and rarely in focus until suddenly it is upon them. A longed-for moment for many, the eagerly anticipated unshackling from fulltime employment and the prospect of more leisure time can quickly be overtaken by worry and a sense of futility brought on by a lack of routine, of purpose and adequate income.
In the end, much of the longed-for free time is spent fretting about unexpected bills and money management.”
And to add to the problem; when constructing a retirement plan, please take into account the capital amount that will be needed to provide for medical cover. I have come across many people who are forced to downgrade their medical cover and even lose it simply because the monthly cost is eating into their capital at an alarming rate.
As space for this column is limited, I have only taken out a few points from the report. If you would like a copy, please let us know by e-mailing us on firstname.lastname@example.org and we will e-mail it to you.
2020 has been a year of huge stress for most. We have seen businesses collapse, unemployment numbers accelerating, people becoming destitute and unable to feed their families and desperation lurking at every corner. Crime is increasing alarmingly and the end of the Covid era is still far away.
In business there are only two ways to increase profitability. Increase turnover and cut costs. And so, it is with individuals too. It is time to cut costs. My late father-in-law was a wise man and one of his sayings that is more valid now than ever before is “to spend money is easy and not a science but to save and grow money is an art”.
It is now time to take stock, to budget and to see what can be cut from the monthly expenses. However, do not forget to plan for retirement and for those who have already retired, look long and hard at those expenses.
From all of us at Morebo, we wish you and your families a safe festive season and hope that 2021 will be a better year for all in our beautiful country.