Last year, we had the privilege of sharing some tasty croissants and fresh fruit with the CEO and founder of 10X Investments; Steven Nathan, and his knowledgeable team to discuss the 10X Retirement Reality Report 2019. The visionary leader outlined various reasons why so many people fail to adequately prepare for retirement. This was an eye opening discussion!
With the Covid 19 pandemic still gripping South Africa, this year’s report was delivered to us virtually. A webinar and breakfast courtesy of 10X Investments. Chris Eddy (Head of Investments at 10 X Investments), delivered the key takeaways from this year’s report; “The sudden and widespread Covid-19-induced financial insecurity seen in South Africa gives a glimpse into the future for most South Africans unless we start taking steps to defuse our national retirement savings timebomb”. Whilst going through the report, I begun to think about the youth and their continued unwillingness to prioritize saving towards retirement. What’s the solution to defusing our national retirement savings timebomb? What gift will you give to your future self, especially if you are young?
The 10X Retirement Reality Report 2020 is a snapshot of the current local retirement landscape and the worsening retirement readiness of most South Africans. The report is intended to draw further attention to the retirement savings crisis in the country and to spark conversation. The report is based on findings of a survey of more than 15-million economically active South Africans (earning R8000 or more). The findings in the report are worrying.
The reality is that there is mounting financial pressure that is preventing people from saving for retirement. Times are extremely tough for many people, while others; especially youth, think of retirement saving as a low priority expense rather than an essential investment. Even those who are saving for retirement, have no idea whether their savings plan is on track or what proportion of their savings they are paying away in fees. They have given the wheel to Jesus! The covid 19 pandemic has shorten the time on this ticking time bomb.
The numbers and stats
The fact that 69% of people surveyed either have no retirement plan at all, or just a vague idea, highlights the need for more education on this topic (see below). A mere 6% of South Africans surveyed said they were executing a retirement plan that they had properly thought through. This aligns closely to with National Treasury’s estimate that only 6% of South Africans were on track for a decent
One of the fascinating questions that was covered in this year’s report includes analysis on how long people think they need to save for retirement to ensure a comfortable one. Most retirement professionals would argue that you should start as soon as possible.
Unfortunately, a large number of people believe that setting themselves up for a decent retirement can be done in a relatively short time, which is one reason why so many people leave it too late. In fact, more than a third of South Africans believe that a comfortable retirement can be achieved through saving for just 24 years or less. Highlighting that most people don’t think retirement planning is important. It’s an afterthought.
Interestingly, 77% of respondents accepted that they would need to keep earning some income after they retired, over and above the savings and/or pension they had accumulated (see below).
The real question is where will these jobs and additional income come from? Considering the high levels of unemployment and on-going retrenchments in South Africa.
Power of compound
Cashing out retirement savings when changing jobs is one of the classic retirement savings mistakes that many continue to make. Cashing out means starting again from the beginning. This can be very damaging as you forfeit on the compound growth that early savings generate over the years, which is one of the real game changers in long-term saving. 10X provides a graph below that puts this into context over a 40 year period.
The graph shows how large a portion of a retirement fund early savings make, and the damage that is done by cashing out.
Retirement saving for who, for what?
Of respondents in the report who said they were not saving for retirement, 56% said they simply could not afford to save money towards retirement. The reality is that the financial pressure that most people are under, compounded by a poor economy, has led to many not being able to save towards retirement. 29% of respondents felt that saving towards retirement was not a priority. More than half of these respondents were youth, 16-34 years old.
Sadly, lots of young people prioritize their current lifestyle, at great expense to their future selves. They want the big car, fancy clothes and lifestyle now! Most leaving it dangerously late to start applying their minds to implementing a retirement plan. Trading-off the now for later. What retirement gift do you intend to give your future self?
We need to change the “afterthought” mind-set around retirement savings. What retirement gift do you intend to give your future self? Will you be a burden to your family or live a life of financial freedom because you made good and consistent decisions over a long period of time?
Tips and things to consider: