The recently released Rapid Mortality Surveillance Report 2011 revealed that the average life expectancy in South Africa has improved from 58.1 in 2010 to 60 years in 2011. According to Henry van Deventer, Head of Business Development at acsis, the longer
The increase in life expectancy becomes even more alarming when applied to retirees. “According to research by the Organisation for Economic Co-operation and Development(OECD), the worldwide average life expectancy from retirement has in many countries gone up by more than 10 years over the last 40 years. This trend is set to continue, and has a significant impact on South Africans planning for retirement.”
Van Deventer says that given South Africa’s low savings rate and the tough times consumers are currently facing with rising living and food costs, saving for retirement needs to be top of mind for consumers, and even more so at this time of year when bonuses and salary increases are enjoyed by many South Africans.
According to Evelyn Doubell, CFP® and Executive Head of Private Clients at Consolidated Financial Planning, the additional savings required for these extra retirement years makes the task of saving enough for retirement more of a challenge. She says a rule of thumb is that for every two years we gain in our retirement life expectancy, we will need to work one more year before we retire. Alternatively, we need to increase out retirement savings or accept that our standard of living during retirement will have to be adjusted downwards. The more time you have until you retire, the smaller these changes need to be.
“Most consumers think that retirement will give them the chance to escape the constant change and instability that they have had to live with for most of their lives. However, it often comes as a shock when they find, even in this ‘restful’ phase of their lives, things keep changing, and as a result, they need to be prepared financially.”
Van Deventer adds that it is important to understand the main retirement phases and events that take place in these phases in order to take into account the financial consequences. “Broadly speaking, there are three distinct phases for retirement, namely the active, passive and frail stages.
“The ‘active’ retirement phase typically occurs between the ages of 60 and 75 years. People in this phase are more likely to take longer holidays and spend more money on leisure, lifestyle and family activities.
“Many in this stage are also not quite ready for a retirement village, but have a need to move into a more secure environment that is easier to maintain. Financial decisions made during this phase will ultimately affect the latter stages of retirement.
“The second or ‘passive’ phase of retirement usually occurs between 75 and 90 years and in this phase, people tend to have more frugal lifestyles and are downsizing their homes. Spending more money on their health also becomes important.
“The last phase is often referred to as the ‘frail’ phase and occurs from the age of 90 onwards and in this phase, the majority of people’s money is spent looking after their health and personal care. In this phase it important to bear in mind medical inflation, the cost of nursing and other related costs.”
The report also revealed that women are expected to live, on average, five years longer than men, and that this figure is gradually increasing year-on-year. “It is important that women take into consideration that they may need to plan for an additional few years of retirement.
“The challenge here may be that women are more likely to work fewer years than their male counterparts because of children or work in part-time jobs that don’t qualify for a retirement plan. Both can result in contributing less towards their retirement, resulting in lower lifetime savings. Another challenge for women is that many still rely on their spouse when it comes to retirement savings.”
It is vital to build investment strategies going into retirement in order to understand possible needs and behaviours, and the long-term impacts of each of these. “It is recommended that all individuals contribute at least 15% of their monthly salary towards retirement in order to retire with a comfortable standard of living. This however varies depending on the age at which you start saving, so it is advisable to consult a financial advisor at least once a year to ensure your retirement goals are on track,” concludes van Deventer.