Retire without financial fear

For every year you expect to live in retirement, you need to accumulate about 5% more capital. Despite this frightening statistic, fund members are not saving enough nor are they informed about their savings, writes Neesa Moodley-Isaacs

If you exceed today’s average life expectancy by a decade, you will have to accumulate 1.5 times more cash by retirement than the amount currently projected, according to Andrew Davison, the head of institutional asset consulting at Acsis.

Davison sketches a perfect storm for South Africa’s young savers between the ages of 20 and 30, also known as Generation Y.

“They will have to take on higher risks to generate higher returns – something that goes against their often conservative investment outlooks – while battling the twin evils of a low-return environment and unemployment. They also face longevity risks.”

Longevity risk
Longevity risk refers to the fact that we now run the risk of outliving our money. Medical innovation, improved disease management and an increased focus on healthy lifestyles mean that Generation Y is likely to live far longer and will therefore have to have a different approach to retirement planning.

The 2013 Old Mutual Retirement Monitor revealed that most respondents believed their retirement savings would only need to last them an average of 17.1 years.

But in equally telling statistics, 39% expect to continue working past retirement age for financial reasons and a staggering 85% confessed that their greatest fear was having insufficient funds in retirement.

Find out about your retirement savings
Willem le Roux, an investment consultant and actuary at Simeka Consultants & Actuaries, adds that the industry’s obligation to young savers goes beyond suitable products, to educating and guiding them at each step on the savings journey.

While employers need to be encouraged to increase education initiatives for their staff around their retirement options and savings, as an individual, you need to become more involved.

» You need to take ownership and make decisions with regards to the fund and put away extra depending on your requirements.

» The fact that a 5% contribution is offered as an option may make you think that this is an acceptable choice, but actually your retirement fund contribution should be nearer to 15% of your gross salary.

» One of the biggest threats to Generation Y savers is the high turnover rate in jobs. Hopping from one job to the next and cashing out your accumulated pension “pot” each time could undo all your savings efforts.

It is imperative that you preserve your accumulated retirement savings.

The 2013 Old Mutual Retirement Monitor reflected that 61% of members who changed jobs in the past 15 years withdrew some or all of their retirement benefit funds in cash, with the majority having made a full cash withdrawal.

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