save to retire

South Africa has a unique set of circumstances when it comes to looking after family. In most South African cultures, it would seem that the duty of support rests on the working family members. This does not sound too onerous until we take into account the growing unemployment.

A few facts

Currently, less than 10% of South Africans will be able to retire at retirement age and live a reasonable to good quality of life during their retirement.

The official unemployment figures are at 27.6% but unofficially are much higher. This is on account of the huge number of people who have simply given up looking for work.

Life expectancy is increasing making the need for effective and aggressive retirement planning critical.

Around 25% of South Africans are supporting their children and parents. This means that unless they are earning in the top 1%, they are likely not saving, or not saving enough to carry themselves, let alone their dependents through their own retirement.

Only 60% of working South Africans have retirement annuities or a pension fund and the amount saved is likely inadequate to see them living comfortably in retirement.

The retirement age is another debate for another day, but let me just say that from what we experience out there, it appears as if lowering the retirement age to 60 is the norm. This means you will need to have enough savings to last you around 40 years of retirement if you are a fit and healthy individual.

What does this mean?

Quite frankly, this means that the number of people that are going to need to depend on the state for retirement is going to balloon to unaffordable proportions. This again will impact further on the family members who are working. And so the cycle continues.

The Government (Treasury) has recognised this bleak future and is trying to instil a savings culture into society with various incentives like the “Tax free savings” account/investment account. With these products, you are able tpo invest R33 000/annum tax free and R500 000 in your lifetime tax free. All returns on these tax free investments are not subject to tax.

There have been no stats released that I am aware of, which shows the amount invested tax free or the number of people who have taken advantage of this incentive.

What can be done to change this

The fact that so few people use financial planners (about 13% in SA) is likely that they think they do not have enough money to save for retirement “at the moment”

This factor is a very worrying factor in that it needs to be impressed upon people that making small changes to their day to day living can have an enormous impact on their future.

A simple example is smoking. If you pay R30 for a pack of 20 cigarettes and you smoke 20 per day, simply smoking 10 cigarettes a day saves you R15/day or R450/month or R5400/year.

Apply this model and invest the savings in a retirement product and you will have made a significant start to a life of saving.

It is a strange thing how small changes like this will change your mindset towards savings. Next you could keep your cell phone and not upgrade to the latest and greatest phone. Simply take out a cell phone contract without a phone and you will save another few hundred Rand a month.

Before you know it you will be saving enough to put you in a position to retire without needing assistance from anyone.

Disclaimer: The opinions expressed here are personal in nature and do not constitute advice in any way whatsoever.