South Africa sitting on a retirement time bomb

South Africa is sitting on a “retirement time bomb”, with most people not adequately preparing for retirement, with many unable to save, few understanding investment costs, and a growing number expecting to work after retirement.

This was revealed in the 10X Investments Retirement Reality Report 2023/2024, which showed that only 6% of the country’s population is on track to retire comfortably.

The report is based on the 2023 Brand Atlas Survey findings, which measures the lifestyles of 15.4 million economically active South Africans living in households with a monthly income of more than R6,000, aged 16+, with internet access.

It found that there has been little fundamental change in South Africans’ inclination or ability to plan for retirement compared to previous reports, with most South Africans not having planned formally.

Even those who have planned are not confident that they are on track to be able to support themselves for the long term, considering inflationary pressures and the economic climate.

“The difference between what South Africans expect their retirement to look like and the realities faced by those in retirement and approaching it cannot be underestimated,” said Tobie van Heerden, Chief Executive Officer for 10X Investments.

He explained that knowledge and information are key to closing the expectation-reality gap, and it is in their long-term interests to be better informed on the importance of saving.

South Africans also need to understand the power of compound interest, the consequences of not saving and the impact of costs.

About half of the respondents with a retirement plan indicated that their plans were “probably” or “definitely” on track, with some variation across age groups.

Significantly, 29% of people over 50 indicated that their plans were “definitely not” or “probably not” on track, which is concerning given that they have little time left to build up their savings.

According to 10X, correcting any deficit in savings after reaching 50 is extremely difficult, and comfortably retiring requires investing at least 30%- 40% of a monthly salary in retirement savings.

Economic Pressures Undermine Retirement Plans

At 72%, nearly three-quarters of respondents whose plans were not on track gave “I am not able to save enough” as a reason.

This ties in with the reasons for not having a retirement plan in the first place: 70% of respondents without a plan agreed with the sentence, “I cannot afford to save; I have nothing left over at the end of the month.”

According to van Heerden, the survey responses underline the harsh economic realities that most South African consumers face.

“Year after year, we are seeing a large proportion of respondents who have been partially or strongly of the view that they will need to continue earning a living after their formal retirement date.”

Of the respondents with a retirement plan, only 37% could give a definitive answer on the costs of their retirement investments as an annual percentage of assets.

Another 37% had no idea what the costs of their investments were; 13% believed that the fee depended on performance, while 13% believed they were not being charged at all.

Fewer people are able to retire on their own terms. In the 2021 report, this figure was 70%; this year, it had dropped to 60%, one of the most significant statistics from the survey.

“This trend reflects the challenging economic times we are living in, indicating a rise in employers compelling their older workers to take early-retirement packages,” van Heerden said

Only just over a third (35%) of the retirees who had saved for retirement indicated that they were “fairly” or “very confident” that their savings would last.

Notably, 2% of retirees indicated they had already run out of savings, meaning they were relying on family or state support.