The culture of spending, coupled with a poor savings record compounds the risk of many South Africans being unable to afford a decent retirement. This could severely strain the country’s already-stretched social welfare budget.
In this year’s National Budget, social assistance was projected to increase from R129 billion to R165 billion by 2018/19. In a tough economy where the Government needs to prioritise cost-containment, working citizens need to improve their efforts to save for retirement.
Preenay Sathu, Channel Head at FNB Financial Advisory says retirement is a subject that people put on the back-burner despite its dire implications for people who have not saved enough for retirement. He says in spite of tax efficient investment vehicles which offer incredible benefits, South Africans continue to show poor commitment towards saving for retirement.
“This, of course, is indicative of consumers’ general attitude towards saving or investing, hence our modest national savings rate of 15.4% to the GDP. Equally concerning is World Bank statistics which show that South Africans are among the top borrowers in the world, meaning that people tend to rely on debt to fund the cost of living.
“We are all familiar with cases of people who are forced to use their limited retirement savings to pay-off debt. This is not ideal because by the time a person retires; they should’ve settled all their debt commitments.”
Sathu says a lot of the risks associated with insufficient retirement savings could be avoided, through some of the following measures:
• Review your retirement plans and set goals
• If you haven’t, consult a goal-based financial adviser to help you
• Explore tax-efficient solutions to boost your position
• Remember that the more you save, the better your retirement position could be
To miminise risks associated with inadequate retirement savings, the South African Government has been working towards placing legal restrictions to safeguard retirement savings. Such limits could restrict how much people invest in investment vehicles considered higher risk and encourage much needed diversification.
“We should welcome efforts that are designed to protect people against the risks of insufficient retirement savings. Our country is going through an economic cycle which makes it harder for people to consider saving for retirement due to pressures of the high cost of living. However, saving for retirement is not something that should be delayed because as it’s incredibly tough to catch-up,” said Sathu.