Start saving early for retirement - we are going to live much longer

By Janice Roberts

Motshabi Nomvethe, Head of Technical Marketing at PPS.

By Motshabi Nomvethe, Head of Technical Marketing at PPS.

 When you spend decades working hard, maybe raising a family, or starting and running a business, it is safe to think that many professionals will look forward to a quiet, peaceful and financially secure retirement. However, the South African National Treasury report of 2014 estimates that only 6% of South Africans will be in a position to retire comfortably.

People are not saving sufficiently for retirement during their working lives and many are also making the mistake of assuming that their spending will reduce in retirement. The statistics provided by National Treasury however, suggests that they will need 70 – 80% of their pre-retirement income, to be able to pay for their needs in retirement.

Once retired, people tend to travel a lot more because they have more free time, and this will come with added expenses of fuel and possibly insurance as well as medical aid expenses for any illness that will increase as a result of old age.

Currently, the standard retirement age for those in employment is between the ages of 60 and 65 but those in self-employment can potentially work until much older.

It’s safe to say that we do not control when we are going to die, when we will get sick or disabled, and we definitely cannot control the stock market, politics, economy and many other areas of our lives. However, what we do have control over is the decisions we make about our lives, our finances, relationships and to a certain extent, our health.

According to Stats South Africa, life expectancy in South Africa at birth for 2018 is estimated at 61,1 years for males and 67,3 years for females. However, for professionals, this is slightly higher as most have better access to healthcare services, nutrition and a healthier lifestyle.

Proportion of males and females who can expect to survive into their 90’s and beyond

Age Males Females
90 27% 38%
95 10% 21%
100 3% 8%
Source: United States Census, 2017 | James Riley for data 1990 and earlier; WHO and World Bank for later data (by Max Roser) | JUST, 2017

Start saving for retirement early

Saving early for retirement is one of the best tools you can use to protect yourself against the financial effects of a lengthy retirement. In reality however, not many of us are disciplined or knowledgeable enough about the benefits of saving early. With professionals changing jobs more regularly, not cashing in any accumulated pension/provident funds is equally important. It’s important that you speak to an accredited financial advisor to understand the best way to manage your pension fund when changing jobs.

The table below illustrates what percentage we need to save at different ages:

Source: Benchmark Survey by Sanlam Employee Benefits

 Saving through insurance

While the need for saving for retirement is important to offer protection and peace of mind for life after retirement, the other side of the same coin is the need to save through insurance.

Risk insurance protects us against life’s eventualities so that we do not use our own funds to pay, for example, the replacement value of a stolen car, or a burst geyser.

Insurance can also protect earning potential against sickness, disability, dread disease and being unable to provide for families in the event of death.

A comfortable retirement is possible and can be complemented by the PPS Profit-Share Account. The savings accumulated in the Profit-Share Account may then be used in retirement to pay for expenses like medical aid, insurance, a retirement home, a special holiday with the family and even some savings for that rainy day.

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