FNB’s five tips to avoid South Africa’s retirement nightmare
Most South Africans cannot retire comfortably, relying heavily on the state and family and working into old age to afford basic necessities after their working career.
FNB’s latest Retirement Insights Survey revealed that almost 50% of respondents do not have a retirement plan.
The bank said this lack of preparation for retirement isn’t just a personal financial risk. It’s also a potential crisis that could send shockwaves through their families and negatively impact future generations.
Without adequate retirement savings, individuals may find themselves relying heavily on their family members for financial support, creating a strain that can prevent the next generation from preparing for their own retirement.
A survey from Allan Gray revealed that the average South African retiree can replace only 31% of their income with their retirement savings.
The survey data also revealed that only 9% of retirees manage to replace 80% or more of their pre-retirement income.
South Africa’s new two-pot retirement system aims to address some of the major issues preventing individuals from retiring comfortably.
In particular, the system aims to prevent people from having to quit their jobs to access retirement or pension fund savings early.
Thus, it aims to make a significant portion of retirement savings, around two-thirds, only available at maturity and forces individuals to use this to purchase a retirement income product.
However, the most important factor in determining individual retirement outcomes is their financial behaviour—how much they save, where they save it, and whether they access savings prematurely.
“The domino effect of the financial burden being passed onto the next generation is a growing concern in South Africa, but it’s not an inevitable fate,” Samukelo Zwane, Head of Product at FNB Wealth and Investments, said.
“There are concrete steps that anyone, regardless of age or current financial status, can take to mitigate this risk and work towards a more secure retirement. By acting now, you can reduce the likelihood of becoming a financial burden on your loved ones in your golden years.”
He suggested five steps you can take today to safeguard your future and protect your family’s financial well-being –
- Work out your retirement ‘magic numbers’
The first step towards a secure retirement is understanding exactly when you want to retire and how much money you will need to maintain your desired lifestyle.
This involves carefully considering when you want to retire and what you’d like to do after your working career.
Working out your ‘magic number’ is crucial. It’s not just about maintaining your current standard of living but also accounting for potential increased healthcare costs and other retirement-specific expenses.
- Grow your money wisely
Once you’ve determined your financial goals, it’s time to focus on growing your wealth.
Ilse Smuts, Business Development Head at FNB Cash Investments, advises aiming for a balanced combination of short- and long-term savings and investment accounts.
For short- to medium-term goals, consider options like Notice Deposit accounts, which enable more disciplined savings, and fixed deposit accounts, which offer guaranteed returns and allow you to set the terms for accessing your money.
For long-term retirement planning and saving, she suggests products like a Retirement Annuity, which provides solid tax benefits and compound growth over time.
Additionally, the Tax-Free Savings Account solution allows you to save up to R36,000 per tax year completely tax-free, maximising your returns and providing you with a useful cash buffer for expenses once you’ve retired.
- Develop a long-term healthcare plan
As we age, healthcare costs increase significantly. Planning for these potential costs is essential to avoid burdening your family.
Consider whether you have the resources to remain financially independent and pay for long-term medical costs and care if needed.
This might involve downsizing your home and living costs in retirement, and setting aside a specific savings fund or ensuring you can afford to continue your medical aid premiums for healthcare expenses after retirement.
- Establish and grow an emergency savings account
Unexpected expenses can quickly derail even the best-laid retirement plans. According to Smuts, starting an emergency savings account as soon as you can and then consistently contributing to it can provide a crucial financial buffer.
She highlighted the importance of balancing growth with access for an account like this, emphasising that you may have to sacrifice a little bit of your returns so that you have immediate access to your money.
Savings accounts offer a flexible solution with immediate access to your funds, and it still provides a competitive interest rate so you can still grow your money over time.”
- Create a debt elimination strategy
Entering retirement debt-free is one of the most effective ways to ensure financial independence and avoid burdening your family.
Carrying debt into retirement can significantly reduce your disposable income and strain your finances unnecessarily.
Hence, FNB strongly advises debt repayment as part of any retirement plan. He recommends that you start by listing all your debts and their interest rates, then focus on paying off high-interest debts first while maintaining minimum payments on others.
You can also consider speaking to your bank about consolidating debts into a single loan with a low interest rate.
The key to avoiding becoming a financial burden on your family in retirement is to take proactive steps towards financial independence starting now.
No matter what age you are or where you are in your career today, every step you take towards financial security later in your life is an investment in your future and your family’s peace of mind.
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