In part two of this two-part article, Old Mutual Corporate’s Kim-Lee Wentzel-Ricketts, Nabeela Noorani and Samantha Jagdessi share five ways to mitigate the shock of retirement and bring the reality closer to expectations.
Many retirees face a massive gap between their retirement dream and their lived retirement reality. South African youth, however, have much lower levels of debt than those who are older, which creates an opportunity to indoctrinate good financial principles and proper financial planning among young people, where preservation is encouraged to see improved outcomes for future generations.
Here are five ways to do this:
Promote financial literacy and education earlier
Feelings of inadequacy play with the psyche – especially among the youth. Linked to this are social pressures. South Africans are highly stressed (financially, emotionally, mentally), which can lead to rash and emotional decisions.
An early understanding of debt principles – of the money being borrowed, the duration needed, the terms, and the compound interest – will equip members with adequate knowledge.
Tap into the optimism of youth while repositioning retirement planning
South African youth are optimistic, but lack a holistic picture of what retirement is. Many view it as a future concept that they don’t need to give much thought to in the present.
Younger generations need to explore and understand the benefits of retirement planning on their preferred digital platforms, but through trusted sources connecting with them. In addition, they need to see retirement planning as something that will help them achieve their financial goals.
Encourage open communication with solutions in place
A member-for-life approach allows retirement funds to look at each member holistically on their pre- and post-retirement journeys, and then offer tailored solutions at each life stage. Member engagement spans across communication, advice, counselling and education.
Provide debt relief and counselling
High debt levels limit retirement savings. Financial counsellors or advisers (in instances where people can afford to pay for advice) can help members build awareness, rebalance their debt levels, and free up cash flow toward retirement.
Where affordability is an issue, members should be offered free debt-remedying and budgeting services to help them better manage their finances.
Promote auto-enrolment
The National Treasury’s proposal of auto-enrolment in retirement funds will improve retirement outcomes, as will the two-pot retirement system, with its mandatory preservation.
An aspect of auto-enrolment that needs consideration is the idea of ‘prescribed minimum benefits’ for retirement – as we find in the world of medical aid. If every income-earning South African was compelled to put some of their income towards retirement, with a portion of that preserved and inaccessible until retirement, it would go some distance to closing the gap between retirement expectations and the reality we currently see.
Read part one 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
