The hard truth on saving for retirement

The reality is that most South Africans do not retire comfortably. This leaves them with limited options in retirement, such as lowering their standards of living or working beyond their desired retirement age. With each passing week, month, year, articles such as this one illustrate that there is an on-going problem with retirement savings. It is a global problem and the graphic below summarises some of the challenges we face in South Africa. Many people do not know until it is too late that they will not retire comfortably and if they knew more about what could put them in danger and how to approach retirement, we could certainly have more ‘green’ people rather than ‘orange’ people, as depicted in the graphic below.

However, a comfortable retirement is in reach if you put in place a good plan and apply the discipline to stick to it.

This is the final article in this series on retirement savings and focuses on key realities of savings in South Africa and how you can improve your chances of retiring comfortably.

Why is this the reality?

The first step to attaining comfort is empowering oneself with knowledge and below are some of the top reasons we face this challenge.

• Not being financially empowered
  Without a finger on the pulse of your retirement outcome, you will never know how your retirement plan is faring against your retirement objectives.

• Investing too conservatively
  If you do not track your retirement plan, you will not know how much risk you can take and how much risk you should take. This often results in you investing too conservatively while young and more so as you approach retirement.

• Not investing enough
  Again, if you are not tracking your retirement plan, you will not know how much you should be saving towards your retirement. Inevitably, you often end up saving too little rather than enough.

• Costs are too high
  The higher the cost of saving, the less you will have left over to save. Our research shows that seemingly small increases in saving costs can have a significant impact on your income in retirement.

• Not preserving when changing employment
  Possibly one of the most significant influences on one’s savings is not preserving when leaving an employer. With respect to your retirement plan, not preserving is the same as starting again from scratch.

• Too many choices and lots of complexity
  The retirement world has a large number of providers trying to differentiate themselves. With so many options, some of them more complex than others, it is very easy for you to make inappropriate product choices that can affect your overall retirement plan.

So how can you go about putting in place a viable retirement plan?

It all starts with a good plan
Surprisingly, it is not difficult to retire comfortably. You just need to know the key areas to get right. The five areas depicted in the graphic below are key areas to attaining a successful retirement.

The first step is to save and to save enough. At least 15% is a start, but if you can afford to save more, do it.

Long enough
Your working life (approx. 35 years) is usually long enough to save. Any less than this and you will need to increase how much you save to make up for the lost time.

Appropriate investment solution
Younger savers should be aiming for a moderate to aggressive risk investment approach. This should reduce as you near retirement to avoid losing any of your invested capital. You should also try to make sure you stay abreast of inflation as you invest.

Low cost
Consider all areas of cost in your retirement plan and ensure you have tried to keep costs as low as possible.

Stick to the plan
Once you have your retirement plan in place, make sure you stick to it and review it periodically. Moreover, do not be tempted to access your savings until it is your turn to retire.

Discipline gets you to the goal
If you have understood the pointers above, then it should be easy to compare the key points to your own situation to see how you are doing.

Be honest with the realities and be disciplined with applying what you have learned to make sure you do not end up as a hard truth.