Nearly four in every five South African retirement savers say they are worried they won’t have enough to live on in retirement, according to the 10X Investments South African Retirement Reality Report 2021 (RRR21), which underlines the fact that simply having a retirement savings plan is not enough.
“Savers must have a plan that is workable, up-to-date and realistic,” says Brett Mackay, Investment Consultant at 10X Investments. “They should revisit their plan regularly to make sure it is still fit for purpose. It is also important to remember that it is seldom too late to improve your outcome, even if you are already drawing a pension.”
RRR21, 10X Investments’ fourth annual report on the state of retirement readiness in South Africa, is based on the 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 report shows that retirement readiness in South Africa continues to deteriorate, even for those who do have some sort of savings plan. 79% of respondents in this category (up from 75% last year, and 72% the year before) are unsure they will have enough to live on after they retire.
Last year, only 12% of those surveyed were not worried at all; this year that number is down to just 7%. On the other end of the scale, those who feel sure they won’t have enough to live on after they retire increased from 27% to 33%.
Mackay, who is also Group Retirement Annuity Manager at 10X, adds that this seems counter-intuitive given that portfolio returns have been good over the past year. “But,” he says, “the deterioration probably accounts for the fact that many people were unable to save over the past 18 months or, worse, were forced to dip into their nest eggs.”
The RRR21 confirmed high levels of concern across all income brackets, although the outlook has deteriorated most for the most vulnerable groups: 84% (up from 76% last year) of those with total monthly household income (HHI) of less than R20k said they were unsure about having enough money in retirement, as did 80% (76%) of those with a HHI between R20k and R50k, and 70% (an improvement on 72% last year) of those whose HHI was upwards of R50k per month.
It is well-known that South Africa is a very unequal society in terms of wealth and income. According to the World Bank, South Africa has one of the highest inequality rates in the world. In such an unequal society, it is noteworthy that concern about running out of money in retirement is only moderately related to current income.
“Being confident that you will be able to preserve your lifestyle in retirement is less about how much you earn and more about how much you engage in the process, inform yourself and save,” says Mackay.
A workable retirement savings plan requires a goal, and a strategy to achieve it. This is easily determined with the help of online tools, such as the 10X Investments retirement calculator, which will work out how much money you will need and how much you need to save today to get there.
Mackay continues: “As they say, the best time to start saving for retirement is when you are young; the second-best time is now.”
He adds: “There are almost always ways to improve your future outcomes. If you don’t have a proper retirement savings plan, start there. Go online, punch in a few numbers, and you will have something to work with.”
One way to significantly improve your retirement outcome, which goes for pensioners as well as savers, is to reduce the fees you are paying on your savings product or annuity, Mackay adds.
“Few living annuity holders appreciate that retirement savings are depleted by fees as well as drawdowns. If you are drawing down at, say, 5% p.a., and paying fees of 2,5% p.a. (plus VAT) you are drawing down almost 8% per year.” (Fees of 2,5% p.a. is the government’s estimate of the industry average, typically made up of 0.75% for advice, 0.25% for administration and 1.5% for investment management).
“If you can afford to draw down 8% of your savings per year, paying 2% less in fees means you could pay yourself 7%, instead of 5%, without accelerating the depletion of your savings. This would mean an instant 40 percent pay rise for you.”
But, adds Mackay, drawing down at 8% per annum will deplete your savings quite quickly. “It would be more prudent to keep your income unchanged and let the 2% p.a. saving compound within your living annuity. This could add 5-15 years to the sustainability of your income (again, depending on your choice of portfolio and future market returns).”
To bring this to life you can work out your own numbers using the 10X Investments’ Living Annuity calculator.