Many retirees face a massive gap between their retirement dream and their lived retirement reality. In part one of this two-part article, Old Mutual Corporate’s Kim-Lee Wentzel-Ricketts, Nabeela Noorani and Samantha Jagdessi share which assumptions often go awry and how behaviours as well as expectations can be shifted.
The transition for South Africans into their retirement life is not always as easy as their younger selves anticipated. Instead of easing comfortably into retirement, where financial freedom has been achieved, and enjoying the fruits of their labour, the average retired person faces a very different reality.
The income they have to fund their retirement is sadly just not enough. Hence the infamous statistic, published by the National Treasury and supported by Old Mutual Corporate Consultants’ 2023 OnTrackTM research, that only six percent of South Africans can retire comfortably. Here are some of the biggest retirement dreams many South Africans hold.
I’ll go on lots of vacations
South Africans tend to define retirement more emotively, and their definition is driven by lifestyle rather than by financials.
This perspective challenges retirement funds to consider how they can engage their members more meaningfully and effectively, with the goal of shifting behaviour.
The typical employed South African’s expectation of retirement is just that: an unmet expectation. The stark reality is that many cannot make ends meet during retirement, having not accurately depicted monthly costs, including medical expenses, groceries, having dependents to take care of, let alone having any money left over for travel plans or to pass on to children. For most, the ambitions of starting their own business to help fund retirement have also not been realised.
There’s time to start later
Why are the majority of South Africans unable to retire comfortably? One reason is that many start saving too late. Those with some retirement savings often cash out when changing jobs – this trend is picked up repeatedly. The cash is frequently then used to help with immediate monthly expenses and paying off debt. Unfortunately, this leads to a deteriorated retirement outcome for them. The onus, then, is on the retirement industry to help educate fund members to plan better financially.
Old Mutual Corporate’s 2023 Retirement Reality research revealed that many impediments contribute to the gap between retirement expectations and retirement reality. These include higher than anticipated living expenses during retirement, improper financial planning, low preservation rates during employment years, low financial literacy levels, the number of financial dependents in a retired household, and debt that has not been paid off during employed years as some of the main contributors.
I won’t have many expenses to cover
Recent retirees typically find their expenses to be much higher than anticipated. Unforeseen expenses include the high cost of education, financial dependents and funeral costs, as well as incorrectly estimating the cost of basic needs categories like groceries, utilities, short-term insurance, etc. This speaks to the need for proper financial planning and education throughout the journey of pre- to post-retirement.
Starting with the number of financial dependents in a retired household, Old Mutual Corporate’s 2023 Retirement Reality research found that half of those who recently retired are supporting at least one or two dependents, while one in three who recently retired are supporting three to five dependents, not planned for. And while most working South Africans claim to have a plan in place for retirement, when recent retirees look back, they realise it wasn’t an actual plan. It was merely saving for retirement through their employer.
I’ll be debt-free
South Africa’s macro-environment is one where inflation and expenses continue to grow at a higher rate than salaries. This places increased strain (financially and emotionally) on South African households. According to the 2023 Old Mutual Savings and Investment Monitor, personal loans are on the rise at levels higher than in previous years.
Many working South Africans are so financially constrained that they take on new debt to service old debt. They aspire to resolve their debt before retirement, but one in three still take debt with them into retirement. Moreover, South Africans are dipping into their savings or borrowing from friends and family to make ends meet.
In an ideal world, employed people should be able to pay off their debt, so that in retirement, their money can help provide a form of income. But many take out their one-third in cash at retirement and use most of those funds to pay off their debt. Ideally, that should not happen – it should be reinvested into something that will create sustainable growth instead.
Read part two here.
This article was compiled by Kim-Lee Wentzel-Ricketts, head of customer research and CVP at Old Mutual Corporate, Nabeela Noorani, research and CVP manager at Old Mutual Corporate and Samantha Jagdessi, head of consulting strategy and best practice at Old Mutual Corporate Consultants, a division of Fairbairn Consulting, FSP
