A comfortable retirement is within everyone’s reach
Historically the Sanlam BENCHMARK Survey has focused on institutional investors and pension funds. This year however there is a very strong focus on the individual member and their experiences of pre- and post-retirement. This has allowed us to draw mean
One of the questions that we asked the retirees is “What advice would you give to young people who are still working and preparing for retirement?” Even though we have asked this question in previous years, the only difference this year is that we did not give the respondents a list of answers from which to select.
What was clear from all respondents was that saving for retirement should start very early in one’s working career. The earlier you start saving for retirement the better. You should aim to put money aside no matter how small the amount may be. It seems many people just don’t understand the effects of compound interest. If you start saving early, you earn interest on interest. Over a longer time period this can significantly improve the amount you receive on retirement. This is generally referred to as the principle of compound interest. To show the impact of not starting to save for retirement as early as possible, we estimate that for each year you delay saving for retirement, you will have to save an additional 2% of your annual salary over time - all other things being equal.
The second message which came through clearly is that individuals need to limit their debt. This is a nationwide problem. Statistics compiled by National Treasury show that the ratio of national debt to disposal income deteriorated from 50% in year 2000 to about 75% in 2011. Therefore for every R10 of disposable income, people on average use R7.50 to repay debt. Given that consumers then have less than 25% of disposal income competing for savings, consumption, education etc. it comes as no surprise that people give less priority to savings.
The third message was that people should take retirement seriously. The Sanlam BENCHMARK Survey statistics show that about 65% of retirees receive retirement advice 15 years before retirement. This is too late given that if you want to replace 70% of your income before retirement you will have to save at least 21% of your income for a period of 30 years. The BENCHMARK Survey statistics also show that only 60% of individuals who seek retirement advice get this advice from their financial adviser. An alarming 40% consult their company human resource department for retirement advice. This raises a concern since human resource consultants are not retirement experts.
The final message is that people should prioritise health and medical care when saving for retirement. The message was simple: “Nothing is enjoyable without good health”. Retirees spend most of their retirement income on housing, medical aid costs and groceries. What makes matters worse is that statistics show that 53% of retirees were not prepared for the high medical costs’ inflation which fluctuates between 10% and 15% per annum. About 64% of the retirees use state medical facilities to deal with a shortfall in medical aid contributions.
By saving enough, regularly, and starting early, you will not become a liability to either yourself or society. It was clear from this year’s BENCHMARK Survey that you do not have to earn large amounts in order to afford to save for retirement. Regardless of challenging individual circumstances we have retirees who managed to save for a comfortable retirement, saved for their children’s tertiary education, and saved to meet all medical costs in retirement. These are often retirees who are earning less than R10 000 per month and they are, in many instances, the breadwinners in their families. These savings heroes share some common characteristics. Chief amongst these is that they are willing to forgo instant gratification in favour of long-term gain. They view a comfortable retirement, good education for their children and affording health care in retirement as more important than satisfying their short-term wants.
