Last year, analysis from the National Treasury revealed that South African households are not saving enough for retirement. In fact, the numbers are so bad that just 10% of South Africans will have enough money to retire. According to Luke Martins, a financial planning coach at Old Mutual, retirement is something that is so far in the future that many can’t even picture what it will look like and, thus, they don’t prioritise it.
“This means that a lot of people underestimate how much they’re going to need to retire, which is why nine out of 10 people haven’t saved enough.” But this unpreparedness isn’t only about an inability to imagine ourselves at 60 or 65, states Martins — there are several major misconceptions about retirement that are preventing people from successfully planning for their future.
For example, a lot of people have the idea that they can just keep working after they reach 65. They also expect to be able to do other things once they retire to supplement their income. “If the work you’re doing isn’t particularly physical, this might be a realistic strategy, but one must remember that there aren’t as many opportunities for people at this age,” he says. You really can’t rely on the fact that you’ll be able to work beyond 65 or that companies will be willing to hire you at this stage of your life. People also tend to over-rely on company retirement funds. “For most people, their company retirement fund is their only form of savings. But you need to buffer this capital with personal savings.”
Discussing another common mistake people make when planning for their retirement, he notes that many think about retirement as a single event that happens when you reach a certain age. “But you must be thinking about how you’ll spend the years you live after you turn 65; consider your desired lifestyle and what you want to do in retirement. If you have kids and grandkids overseas and you want to visit them once a year, you need to include this in your plan, so that you have the money you need to pay for these trips.” In line with this, people often assume that they’ll be able to survive on far less money once they retire, but Martins cautions that some expenses actually increase after retirement. Healthcare and security as two examples of areas where you could spend more as you get older.
Additionally, Martins highlights that people have the idea that they can finance their retirement with the capital they get from downgrading their lifestyle. “Maybe you have a holiday home you can sell, or you decide to move into a smaller home.” This is fair enough, but just because you have something to sell doesn’t mean that there will always be someone to buy it, he explains, noting that one must be mindful of the different taxes you will have to pay when you sell these assets. This can dramatically reduce the amount of money you get out in the end.
When thinking about your retirement, it’s essential to start by coming up with a plan — and then you need to stick to that plan. “This is where having professional help is an incredible asset. People have perceptions that all financial planners do is give you access to a suite of products, which you could research and seek out yourself,” he says. “But a financial planner’s job is actually to help you create a long-term view. They’ll look at your current lifestyle and use this to create a roadmap so that you have what you need if you live to 100. When people try to do it on their own, more often than not, they don’t get it right.”
Financial planners also act as a great sounding board, helping their clients to make the best financial decisions so that they can achieve their goals.
It really is never too early to start saving for your retirement, stresses Martins, noting that far too many people think they can worry about it when they’re older. “This is a mistake,” concludes Martins. “You really must start as soon as you can.”