There is a looming crisis on the horizon: South Africans can’t afford to retire. A study conducted by the Association for Savings and Investments in South Africa (ASISA) revealed that a mere 6% of working-age individuals will be able to enjoy a comfortable retirement.   Deloitte’s research indicates that the country’s savings rate is a dismally low 0.5%. This could result in many people being unable to retire in order to provide for themselves and their families.   The prospect of enjoying a bright and secure retirement in your golden years may not be as promising as anticipated. 

Let’s get to the crux of the matter. Why South Africans can’t afford to retire and how to evade this crisis in the future? There are a few reason for the middle-aged population to start quivering in anticipation of the future.

Inadequate Savings

As mentioned before, South Africans are not saving enough money for a rainy day, never mind affording to retire. This can also be attributed to the high youth unemployment rates in the country across age groups. As of the second quarter of 2023, the unemployment rate for age groups 15-24, 25-34 and 35-44 was 61%, 40%, and 28%, respectively. Contributory factors also include the informal labour market, where they do not have access to retirement or pension funds and limited access to formal retirement annuities.

Financial Illiteracy

The recent Baseline survey on financial literacy in South Africa found that only 51% of individuals are financially literate. Therefore, under half of adults need help understanding basic financial concepts such as interest rates, inflation, and savings. Financial illiteracy is especially prevalent in rural communities and among those with low incomes, as they have limited opportunities for financial education.

Lack Of Trust In Financial Institutions

Numerous individuals in South Africa have been victims of financial fraud, deceptive sales practices, and various types of financial wrongdoing, resulting in a loss of confidence in financial institutions. This erosion of trust poses a challenge as people are hesitant to follow advice from financial institutions, fearing that their best interests are not being prioritised and instead being pressured to buy policies. 

High Levels Of Debt

A large number individuals are struggling with high debt levels which can impact their ability to save for retirement. Due to the rising costs of essential items such as food, water, electricity, and fuel, along with issues like Load-shedding and a decrease in the value of the currency, numerous individuals are finding it necessary to turn to credit for financial support.   The burden of heavy consumer debts like credit card balances and personal loans poses obstacles to saving for the long-term. 

Finding solutions to financial stress among middle-aged individuals in South Africa is a challenging task, however, there are effective strategies available.

Creating A Retirement Plan

A retirement plan consists of a financial plan as well as the non-financial aspects, which include lifestyle choices such as how you want to spend your time in retirement and where you’ll live.

You need to figure out what type of retirement financial planning you want. There are basically 4 types: retirement fund, provident fund, preservation fund and retirement annuity. Retirement fund and Provident fund are supplied by your employer and are compulsory to join. A retirement annuity is a tax-effective retirement investment you take out as an individual to supplement your retirement. A preservation fund is a fund you would move your retirement benefits to upon resignation, retrenchment or

The Importance of Early Planning

The most important step of retirement planning is starting early, and for a simple yet effective reason: The power of compounding interest. Furthermore, individuals who start saving for retirement early on will enjoy a longer time for their investments to grow, which can lead to significant wealth accumulation in the long run. More time = more time.  Moreover, early planning enables individuals to weather market fluctuations and mitigate the impact of economic uncertainties on their retirement funds.

Budgeting Is Key

Simplicity is essential when creating a budget. It is important to monitor expenses to analyse your spending patterns and determine where to reduce without compromising on your enjoyment. Create achievable goals, such as paying off debts or saving for a vacation, to stay focused. Use budgeting tools or apps to streamline the process and stay organised. Continuously assess and modify your budget as necessary to achieve lasting success.  

Debt Management Support

Debt Consolidation and Debt Counselling is nothing to be ashamed of and can be a great tool to get you back on track to your financial goals. We believe that it is our responsibility to help our clients understand their financial situation so they can make informed decisions. At Vantage we’ve assisted thousands of consumers to affordably manage their debt and achieve financial freedom. Let us help you!