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Effective retirement needs a mindset change

10 July 2013 Jonathan Faurie
Jonathan Faurie, FAnews Online Editor

Jonathan Faurie, FAnews Online Editor

While there is a prevalent maxim in society that one should live for the moment and take each day as it comes, one has to be mindful that we will not be young forever and that one of the only things we can’t cheat in life is time. And while we sit and thi

The sad reality is that the majority of South Africans are not prepared for this. Be it because of lifestyle choices or government policies which encourage spending retirement money before retirement actually happens, South Africans are generally under prepared for retirement when compared to their international counterparts.

Change of Mindset

Speaking to the FAnews Allan Heynen, MD of BDO Wealth Advisors, points out that there is a poor outlook towards retirement in South Africa that needs to be changed.

“The lifestyles of many South Africans are not geared towards retirement. We tend to take the approach of sitting back and worrying about retirement when it is on their door step rather than when it is on the distant horizon,” he says.

He adds that this outlook is more prevalent among the younger generation (those born between 1983 and 2003) who are new to the workplace when compared to those who have 20 or 30 years experience in the industry.

“There is a significant need for workers to start saving for retirement from the first day that they start working. It must be seen as a critical investment,” says Heynen.

Mitigation Measures

There are measures which can be put in place which can facilitate this change in outlook.

The first step is to work out how much money you will need to retire and then prioritise towards achieving that objective. Heynen encourages South Africans to sit down and look at incorporating retirement planning into their monthly budget.

Another way to achieve this, which goes hand-in-hand with effective budgeting, is that young South Africans who don’t have any commitments (bonds and families of their own) should be encouraged to take on more risk while they are putting down roots. These funds are not cash tied and can be adapted to suit the conditions of the market.

Heynen says that to avoid inadequate retirement, and long before any investment decisions are made, three key questions need to be answered to make available capital stretch further:

- Will I work after retirement age?

- Do I take greater investment risks?

- Do I cut back on the current lifestyle?

“The reality is that given the lifespan of people, few retire with enough capital even with the right investment products. Unless the savings mindset of those entering the job market changes, we are going to see an increase in reliance upon state funded aid and younger taxpayers to support an older generation of retirees with little means.”

Governments Outlook

To put the nature of this article in context, we need to take into consideration the following: according to National Treasury, only 6% of the South African working population will be able to retire comfortably.

Olano Makhubela, Chief Director of Financial Investments and Savings at National Treasury says that workers should work towards a replacement rate of 75% which means that once you retire you will receive 75% of your last salary every month.

The sad reality is that not many people can afford that. And a major contributor to this is default payments. Current legislation states that when a worker changes jobs he/she is paid out their pension and the ownness is on the individual to reinvest this into a new retirement policy. Sadly this is not the case. Government is considering a two pronged approach covering pre-retirement preservation and post-retirement preservation.

With pre-retirement preservation, once a worker retires from his/her company the retirement funds go into a trust fund which is managed by a financial services provider or the company with whom the previous fund was held. This would then be transferred to the new policy once it has been opened. “Hopefully there will be long forms and administrative questions to be answered when one wants to draw money out of this fund. We understand that it is the persons money and that they are entitled to it, we just want to improve the quality of life for South Africans,” says Makhubela.

With post-retirement preservation, once a worker has officially retired, his/her retirement funds will be paid out in stages as opposed to a lump sum.

“Government is in the process of passing legislation which will put the post-retirement measures into law soon. The public can still comment on this. However, there needs to be more consultation on the pre-retirement preservation measures and hopefully we can achieve this by the end of the year,” says Makhubela.

Editor’s Thoughts:
Going back to my days at school, which seems like many years ago but in reality was not, there was a definite lack of guidance when it came to financial planning for retirement. Granted, it may seem farfetched to target school goers for retirement planning, but is it really when you consider Heynen’s advise of contributing towards retirement continuously from your first pay check? And do you think Treasury’s measures of post and pre-retirement preservation will prove to be effective? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Sbudawize, 21 Jul 2013
I am a financial adviser my self
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Added by Sbudawize, 21 Jul 2013
I am a financial adviser
Report Abuse
Added by Johan G, 11 Jul 2013
There are no easy answers to the challenge for individuals when it comes to retirement. Best one can do is to educate yourself on investment and financial principles, have a stewardship mindset, start as early as possible and stay the course once you have a well thought through savings and investment strategy in place. All roleplayers in the financial services industry should work together constructively to make financial independence at retirement a possibility for those that are willing to work towards it.
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Added by notlaw, 10 Jul 2013
I am currently retired and when I started to work women were not allowed to belong to a pension fund in many companies and only after 5 or 10 years of service were you allowed to join. This has resulted in many women of my age not having sufficient savings. I think it should be compulsory that a % of all workers salaries be invested in a national pension scheme that is administrated by people who understand the concept of growing pension monies. The fund will only supply pensions to original contributor and spouse and only a monthly pension not any lump sums.
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Added by Paul C, 10 Jul 2013
The future of South Africa looks uncertain. The government of the day is contributing to this uncertainty. This, plus the fact that most people simply cannot afford to make provision for the future, are the reasons why most people have given up.
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Added by Irene, 10 Jul 2013
We are retired now and have all along done everything we were told to do - contributed 13-15% of gross income, preserve, etc. However, little did we realize the extent of the rip-off by the Financial Sector (advisors, consultants, administrators & managers) on Retirement Funds with all their fees and the effect that this eventually would have on the amount available to members to see them through their retirement. It is annoying that ordinary folk keep being told they were not contributing enough, when the blame lies squarely with the Financial Sector. Judging from how the Government is running the country and handling the economy, why would anybody trust this Government not to keep their hands off these funds and would members be in a better situation than now? Seems people have no choice other than to become more responsible for their own destiny than to entrust their money to the Financial Sector or Government.
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