Investec retirement warning

South Africans are likely to live longer than expected due to technological advancements, complicating their financial planning for retirement. 

A secondary issue for individuals living longer than expected is that they are often unlikely to remain healthy during these later years, which significantly increases their retirement expenditure. 

This is feedback from Investec experts in a recent research note as part of its Investing in Life series, which outlines the significant challenges associated with financial planning. 

Investec also explained that this has significant implications for the global economy, with people over 50 years old contributing more to total GDP than ever before. 

By 2050, it’s estimated that this age group will account for 60% of global consumption, driven by wealth accumulated over time. 

If you’re not blessed with billions, then taking appropriate steps to secure your financial future becomes even more important. This means adjusting your time horizons in at least three areas:

• How long you can work for.
• How much you should save.
• How far you can extend the period of your life lived in good health.

A recent retirement report estimates that only 6% of South Africans are on track to retire comfortably, despite the country having a relatively sophisticated pension system.  

This was exacerbated during the pandemic, when many households had to draw on their long-term savings and increase debt levels to cope with salary cuts and the economic downturn.

For most South Africans, there remains a significant gap between expectations and reality regarding how far their savings will stretch in retirement. 

This is something that South Africa’s new two-pot retirement system is actively trying to solve by limiting early drawdowns and forcing a larger share of funds to be invested until maturity. 

However, the problem is exacerbated by the fact that South Africans are likely to live longer than initially expected, resulting in their already insufficient savings for retirement lasting an even shorter period of time. 

Longer life, more problems

Another major challenge posed by individuals living longer is the need for them to work longer to afford retirement, as their savings are insufficient. 

Data collected on over 300,000 Sanlam retirement fund members shows that while the official retirement age remains 65, most people can only afford to retire at 80.

This is primarily due to inadequate savings during their working careers or higher-than-expected expenses during retirement, resulting in insufficient savings that fail to sustain their lifestyle. 

Many individuals also rely heavily on the state and their families to supplement their retirement income, placing an increased burden on the government’s social safety net. 

Worryingly, if individuals rely on their families for support, this often means that younger generations are not saving adequately for retirement.

As a result, most people will need to work an additional 15 years to achieve financial security in retirement. 

This 15-year gap represents a financial challenge and a fundamental shift in how people think about retirement planning and employee benefits in South Africa.

Investec’s experts flagged another issue with a longer retirement, with studies showing that it can quicken physical and cognitive decline. 

If age distributions change, retiring at 65 can feel unnecessary and wasteful, since many people are at the peak of their knowledge and performance, they said. 

Until legislation catches up, if you’re facing the mandatory retirement age and still need (or want) to work, you may need to find new ways of adapting to different jobs or join the class of consultants who lend their wealth of experience to training younger employees.

Finally, while lifespans are being extended, it is not always the case that individuals are extending the years they live in good health. 

Although certain illnesses like bronchitis and emphysema have declined through lifestyle education like discouraging smoking, certain cancers have increased, along with heart disease, diabetes and strokes.

This poses a massive challenge during retirement as expenses are broadly expected to decline after one’s working career, but deteriorating health can result in significant medical expenses.