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South Africans are lagging behind on their retirement savings, but there is a way out

Nov 15, 2022
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Most South African households are not adequately prepared for retirement or their short- to medium-term savings needs. As per the latest National Treasury analysis, household savings average just above 2% of GDP per year, with most of it being contractual retirement savings.

Retirement savings are however also currently on the lower end of the savings spectrum. The latest 10x Investments South African Retirement Reality Report of 2022 indicates that 46% of South Africans are not planning for retirement. The remaining 54% claim to have some form of savings plan, though most admit to not knowing much about them.

Also, 93% of respondents accept that they will probably need to supplement their income after they retire or believe that they will, with just 7% believing that they will be financially independent in retirement. However, the report also stated that 70% of respondents simply could not afford to save. For most of them, the problem is not unrealistic expectations or ignorance, but economic hardship.

Be that as it may, there is still a very strong need for consumers to start saving for retirement in time in order to retire comfortably. Without a healthy retirement fund in place, you may have to rely on the measly government provided pension fund to survive. In essence, the grant is only meant to supplement your income and not replace it. This can leave a heavy financial burden on yourself as well as your family.

The rule of thumb is that everyone has to reach atleast 75% of their income over a 40-year duration (age 25- 65). This means that the later you start saving, the more you’re likely to contribute towards your retirement savings. As a result, people starting in their thirties contribute as much as 24% while those in their forties need to contribute 43%, and those over 50, 60%.

Because of compound interest, it is best to start saving early in order for your retirement plan to yield the most favorable results. Despite this, it’s never too late to start saving. Even if you started late or have yet to begin, it’s never too late to begin. Here are steps you can take to increase your retirement savings. It’s never too late to get started.


1. Refine your budget, set up automatic savings

The first step to freeing up cash is to review your budget and eliminate any excesses. Then, identify an achievable savings goal and determine how much you can automatically save on a regular basis. Making small changes over time can be less overwhelming if that seems overwhelming. Remember to make your retirement income calculations based on the assumption that you will live a long life, perhaps well into your 90s.

2. Eliminate Debt as Quickly as Possible

When you eliminate outstanding payments, you save money on interest you would otherwise have to pay. You can eliminate debt quickly by using the “snowball method.” Just as snowballs start out small and grow bigger with effort and momentum, you can use the same method for paying off your debts. As you repay small debts first, you gain momentum for repaying larger obligations. After paying off your smallest debt, you put the money you allocated for it towards your next smallest debt.

3. Save, Save, Save

The undeniable fact is that one of the most important factors in ensuring that you will have money in your retirement years. While it is difficult, it also helps you develop the discipline to spend less than you have coming in, which can help you through the years when you are not earning income. If you’re behind on your retirement planning, saving now is even more important than ever.

4. Reset some expectations

Your ideal retirement might include three trips to Europe per year and living in a big city. However, if you’ve gotten a late start on saving, it may be time to reconsider your options. You might not have enough money to travel frequently and live in a luxurious location. But that doesn’t mean you can’t leave your job early and enjoy local trips, low-cost entertainment, and the freedom of not being tied to a schedule.