Shortening time horizons help South Africans save for retirement

Planning and saving for retirement is a long way down most South African’s priority list. As such linking retirement saving to shorter term goals is proving effective in helping South Africans save.

In short, “developing a retirement savings roadmap that takes multiple life choices and opportunities into account by allowing varied contributions over time helps people save for retirement throughout their lives even as choices, circumstances, responsibilities and income varies” says Ryan Knipe, Head: Advisory Services, Alexander Forbes Retail Holdings (Pty) Ltd.

For example, a young person needs to cover their rent, pay off a student loan and save for a car. A little later on they might be saving for a deposit on a house or flat of their own. If they marry and have children there will again be different more immediate educational and other expenses. Alternately, if they choose to start their own business there will be other needs and goals. Later in life, as children leave the home or businesses become more profitable, expenses will decrease.

As such, an effective way of getting people to take retirement planning more seriously is to shorten the time horizons of retirement planning to focus on their current needs.

Developing a retirement roadmap with shorter term goals that match current earnings with immediate lifestyle needs helps people see retirement saving as a constantly evolving necessity throughout their lives. This allows them to meet immediately pressing needs without losing sight of overall retirement goals.

Most people would never dream of not fixing their vehicle when it breaks down as they rely on it every day. Yet “it is far more important to be preparing for retirement now than upgrading your vehicle, mobile phone or buying new shoes” says Knipe.

With most people battling to come out on their existing salaries, imagine how they will battle on no salary at all. Despite this, “retirement, which is probably more necessary than a private vehicle, seldom features in most South African’s monthly budget, until it is too late” says Knipe.

Instead, a lifestyle-driven retirement plan linking long term goals with shorter term needs is making retirement planning more tangible and immediate and proving more effective in helping South Africans prepare for retirement.

“By keeping retirement contributions a constant even if variable monthly expenditure item people, especially young people, are able to benefit from the huge advantage of compound interest or consistent investment performance over time” concludes Knipe.