On Sunday 10X released their second annual retirement report. I was fortunate enough to spend Monday morning with Steven Nathan and his team discussing some of the shocking stats that Brand Atlas gathered. The two things that stood out for me was the big discrepancy between the savings patterns of men and woman and the ridiculous fees that people are paying for their retirement funds. Before I get into too much detail, let’s first discuss some of the stats.
How do we perceive retirement?
According to the report, only 6% of people have a plan for retirement (see below). This is 6% of people that are economically active (earning R7 600 and more). So, this figure is actually significantly worse. This can, in part, be attributed to the fact that 23% of people think that they can retire after saving for only 20 years.
Granted, it can be done, but according to the calculations I did in my article how savings rate influences your retirement, saving for retirement in 20 years will require a savings rate of more than 60%. If you did it over 40 years (double the time) you would only need a savings rate of 15% (a quarter of the money). Retirement becomes exponentially harder if you start later.
If at this stage you think, fuck it I won’t retire anyway, you are not alone. Most people find it too complicated and then just ignore it (like someone with Truecaller ignores Foschini) and hope for the best. Another 36% of people surveyed simply did not find it important at this stage of their lives.
Women and investing
One worrying thing that the report did highlight is that women are 9% less likely to have a retirement plan (see below). Given the fact that women live longer than men (about 4 years longer on average) this is a worrying statistic. Of the women surveyed, 42% simply do not invest. Of the remaining 58%, more than 60% only invest in cash products. Siobhan Cassidy summarised it well when she stated, women tend to be great savers but terrible investors.
What is in the name 10X
You’d be forgiven for thinking that is simply meant that 10X wants to give you ten-fold returns on your investment (I did too). However, it actually refers to the amount of money you need to retire, 10 times your annual salary. I was a sceptic as well but here is 10X’s argument.
You are earning R200 000 per year, and you have R2 million saved (10 times your yearly earnings). At the age of 65, you can buy a guaranteed annuity for an income of 7.5% of your investment. This means that R2 million will buy you an inflation-adjusted income of R150 000 per year (75% of your salary). The argument is that you can significantly reduce your costs if you are not saving or working anymore.
Traditionally, the FIRE community aims to live on 4% of their savings per year. This means that you require 25 times your annual expenses to retire. This got me thinking, isn’t it then better to simply save enough money and then buy a guaranteed annuity for early retirement. The problem is that you cannot buy it before 55 and if you did buy it at 55, the yearly yield is only 4.6%. However, it is a good idea to look at guaranteed annuities when approaching retirement.
What we should do going forward?
Save whenever you can
There are definitely issues with the savings strategy of South Africans. I think we are quick to blame the economy for the state of our finances and this is true for the majority of people. However, the economy will turn and then you need to be setting money aside when there is extra cash available. Save at the start of the month to ensure you do not get tempted into spending it on R20k bottles of champagne.
Have a plan
Decide how you are going to get to retirement in one piece. It does not need to be a great plan. Nor does it need to be a complex plan. It simply needs to be a plan that you can follow religiously. Once you get into the habit of saving, the plan will change often and that is okay. We all shift our focus from bonds to property and then shares as our focus changes. Just start.
Focus on fees
50% of people have no idea what they are paying in fees and 12% of people are paying more than 4%. In the climate we are investing now, there is no reason why you should be paying more than 1% to invest. You will be able to find a retirement annuity for less than 1% from 10X, Sygnia or Easy Equities. You can also invest in shares, bonds and properties for less than 1% through Satrix, Coreshares and Ashburton (all available on the Easy Equities platform).
Ask the right questions
When you want to invest, you need to ask three questions: What are the fees, what can I realistically expect in terms of growth and where will the money be invested. Don’t let anyone make you feel stupid for asking the right questions. These are valid concerns and if you don’t get straight answers, walk away.
Be safe out there,
Quote of the week"Our incomes are like our shoes; if too small, they gall and pinch us; but if too large, they cause us to stumble and to trip." – John Locke Click To Tweet
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