The 10X Investments’ latest Retirement Reality Report is based on the findings of the 2022 Brand Atlas Survey. Brand Atlas tracks and measures the lifestyles of 15.4 million economically active South Africans (those living in households with a monthly income of more than R6 000) through online completion surveys.
10X Investments says that when it published the first Retirement Reality Report in 2018, the intention was to build awareness and understanding of the looming retirement crisis in the country with a view to inspiring change. But this has not happened.
“Subsequent reports have shown that the outlook is worsening by most measures as South Africans focus their attention on overcoming more immediate financial pressures, brought on by measures to contain the pandemic, rising prices and interest rates, and a precarious job market.
“But, by focusing only on their near-term circumstances, which are largely outside their control, and ignoring what is important over the long term, where minor changes can deliver huge returns down the line, South Africans may condemn themselves to living in perpetual crisis mode,” the report says.
As with previous reports, this year’s report shows a widespread lack of retirement planning and a lack of engagement that often manifests in hubris and unrealistic expectations, which lead to further disengagement.
There is one “bright spot” in 10X Investments’ latest Retirement Reality Report: the steady deterioration in the number of South Africans without a retirement plan has not only halted but reversed slightly. In other respects, the report paints a bleak picture of the retirement prospects facing most South Africans.
The main problem is people don’t have money to save
However, the report says unrealistic expectations and ignorance are not the only problems. For most people, the issue is economic hardship: 70% of people surveyed say they cannot afford to save because there is nothing left at the end of the month. This is up from 64% in 2021 and 56% in 2020.
The second biggest reason for not saving for retirement was “It is not a priority for me at this stage of my life”. The percentage of respondents providing this reason has steadily declined, from 36% in 2019 to 20% in 2022.
The report comments that this could mean respondents no longer have the “luxury” of choosing how to allocate their discretionary spending, because they now lack that discretionary spending, or there is a shift in attitudes towards retirement saving, based on their own recent experience. “Either way, the declining apathy towards retirement saving is welcome.”
Inability to save is acute among those aged 35 to 49
When respondents were broken down by age group, those aged 50-plus were the exception to the trend of respondents who say they have no money to save. In the 50-plus age group, the number has declined from 76% to 71%.
Things are tough for respondents aged 35 to 49, who make up 30% of the survey, with 83%, up from 79% last year, saying they cannot afford to save. Last year, 4% of them thought they could rely on their business to support them in old age, but that is down to only 1% this year, which tallies with anecdotal evidence of how many smaller businesses shut their doors for good during the pandemic and afterwards.
However, the tough times “have done little to diminish illusions in this group”, the report says. The percentage indicating that retirement is not a priority at this stage of their life more than doubled (from 6% to 13%) and those not planning to retire increased from 9% to 11%.
The 16-to-24 age group showed a significant increase in the number who cannot afford to save, 58%, up from 48% last year, which was itself a big increase on the previous year’s 40%.
“It seems that today’s tough economic reality is hitting this generation and having the knock-on effect of diminishing illusions: significantly fewer in this cohort don’t view retirement saving as a priority this year (30%, down from 37% last year),” the report says.
It also notes that, tough economic times aside, the data continues to show that many South Africans prioritise their current lifestyle, at great expense to their future selves.
More respondents have a retirement plan (of some sort)
What 10X called the “bright spot” in this year’s report is that the share of people surveyed who said they have no retirement plan reverted to the 2019 level of 46%, after reaching 50% last year.
“It remains to be seen whether this is the start of a permanent trend reversal. Irrespective, in absolute terms, the percentage remains alarmingly high and does not portend well for the future.”
By “retirement plan”, the report means a considered and documented savings and investment strategy that will enable savers to accumulate enough money by the time they retire to maintain their standard of living in retirement.
Respondents who said their retirement plan “is a bit vague” increased to 22% after bouncing between 20% and 21% between 2019 and last year.
On the other end of the scale, the percentage of people who said they were executing a properly thought-through retirement plan has remained steady at 8%. That figure improved last year, by a third, from 6% the previous two years, but in a country without meaningful social security, it remains “stupendously low”, the report says.
Combining those who said they have “a pretty good idea” about their retirement plan (23%) with those who have a “thought-through plan” makes for a relatively positive cohort that is growing: 31% of respondents, up from 29% last year, fall into this group.
But the report says that having a “pretty good idea” suggests familiarity rather than insight – not knowing what they don’t know – and hints at the superficial understanding and relaxed approach that many South Africans bring to the subject of retirement planning.
“That people tend to prefer these middle-of-the road self-assessments – ‘vague idea’ and ‘pretty good idea’ – without fully committing to where they stand on this subject, and how they feel about their retirement plan, probably talks to the general lack of engagement,” it says.
Most people leave saving too late
A reason for the lack of planning is that people under-estimate how long it takes to save for a comfortable retirement. Most people think they can leave saving to the final 20 or 30 years of their working lives is a significant contributing factor to South Africa’s retirement crisis, the report says.
About a quarter of respondents believe a comfortable retirement can be achieved with a savings rate of under 10%. The recommended rate for a 40-year working life is at least 15%. Skimping on that additional savings is a terrible trade-off, because what they might gain in the short-term (5% to 10% more take-home pay) means they miss out on receiving 50% more income in retirement.
Thanks to the benefit of compounding, small amounts invested in a well-diversified high-equity fund at a low cost will grow to amounts that might be difficult to imagine at the start of a savings programme.
“Education, and a cultural change based on the understanding of the difference it makes to start saving at a younger age, would potentially unlock massive positive change,” the report says.
