Have you given your retirement any thoughts recently? Do you have a concise plan that justifies your attitude about your retirement? Regardless of your situation, the overwhelming majority of economically active South Africans don’t have a retirement strategy.

The Retirement Question in South Africa: A Layman's Guide

Nov 07, 2019

Have you given your retirement any thoughts recently? And don’t give the defensive “I know what I’m doing.” reply. Do you have a concise plan that justifies your attitude about your retirement? And even if you have a plan, have you been measuring your wealth to keep track of your retirement goals?

You are not alone if your prevailing answer has been negative to the questions above. Regardless of your situation, the overwhelming majority of economically active South Africans don’t have a retirement strategy. That’s why scores of people are forced out of retirement.

In this article we will look at these important questions around retirement issues in South Africa:

  1. Keeping Up with the Joneses: The reason why so many cannot afford to retire
  2. The actual definition of being able to “retire”
  3. What kills retirement
  4. Why are people being forced to come out of retirement?
  5. The other side of the working force: why are people being pushed into forced retirement?
  6. The basic action plan for retiring well
  7. Is it time to take your money out of South Africa?

Let us help you to understand how and why people are forced out of retirement. If you apply this knowledge you may increase your chances of a better retirement. Happy retirement is possible for normal people.

Keeping Up with the Joneses

South Africa is an interesting country. Marketing and social media influence customer behaviour to a large extent. As a result, many South Africans end up buying things they don’t really need. They love keeping up with the Joneses by buying the latest cell phones, clothing, and cars.

South Africa is also at the forefront of financial technology on the African continent. In many regards, it can stand its ground on the global banking rankings.

This high level of financial sophistication coupled with economical challenges (like an overspending population) puts lots of pressure on the South African economy. This leads to a large number of over-indebted South Africans. The latest news around this has become extremely alarming. Many South Africans either don’t have retirement plans or are forced out of retirement. Either way, it doesn’t point to a sound financial future for South Africans. Even on a national level.

What is Retirement?

Retirement refers to a time in your life when you don’t work anymore and live off the wealth you’ve created and stored during your years of work. There is no legal retirement age in South Africa. South Africa’s law makes provision for retirement age, but it is up to the employment contract to state retirement age.

Therefore, your retirement age is completely dependent on your employment contract. Your contract with your employer needs to state retirement age. It’s considered unfair if your employer dismisses you based on age if it happens before your stipulated retirement age.

Some people look forward to retirement and others dread it, but the uneasy truth is many are forced out of retirement to start working again. Even worse, some are forced to retire based on their employment contract but don’t have any retirement plans. What kills retirement plans? Let’s have a look.

Retirement Killers

Why can’t people retire? There are, as usual with cause and effect analysis, many reasons. But they may in some way boil down to one of the following 4 reasons.

The Debt Trap

Millions of South Africans have credit facilities. Credit is a helpful tool if used wisely. You can use credit to finance a project that creates more income. Governments usually use credit to stimulate an economy in some way.

But, unfortunately, millions of South Africans are over-indebted. These people have fallen into a trap that is hard to escape. Lenders need people to borrow or else they won’t make any money. So they encourage customers to borrow more. People end up borrowing more than they can repay and in so doing spend the majority of their money on credit repayments. Leaving them with very little to invest for retirement.

Lack of Financial Education

The old saying still applies. Knowledge is power, and financial knowledge breeds wealth. The lack of financial education in South Africa has a massive impact on the economy. You won’t be able to plan for retirement if you can’t steward your resources.

Lack of Foresight

Some people just don’t think about their future. Retirement plans are a bit like good health. You take it for granted but become concerned when you need it. And just like good health, retirement plans don’t materialize overnight. It takes time to build your retirement investments.

Just take South Africa’s retirement stats, for instance. Only 6% of economically active South Africans have a retirement strategy. The rest have their reasons, but if something is important enough for you, you’ll find a way to get it done.

Bad Investing

No matter the retirement strategy you employ, it will require a form of investment. Something has to store and hopefully increase the wealth you generated over the course of your career.

People who don’t diversify their investments run the risk of losing their retirement funds. You can always ask for expert advice from Certified Financial Planners. They are registered to aid people with the generation and storing of wealth. Invest wisely to ensure the growth of your funds to help finance your retirement.

Why are people being forced to come out of retirement?

Why are people forced out of retirement? Why would people go back to work when they reach retirement age? There are two main reasons.

1. They Never Saved Enough to Start With

South Africa doesn’t have a welfare system that can look after a family. Ask the millions of people who collect welfare grants at the start of each month. You need an additional income above that. And you’ll need to work beyond retirement age if you didn’t plan for it. Many South Africans simply can’t afford retirement. They don’t have any other choice but to keep working.

2. Unexpected expenses (medical etc.) force them to work again

A retirement plan can’t foresee expensive medical bills or unexpected maintenance fees to your house. Unexpected expenses can kill your retirement plans. And it may cause you to go back to work to support your lifestyle after retirement.

The other side of the working force: pushed into forced retirement

There are two sides to the retirement issue. Those who can’t afford it and then those who are forced into it. It may be even tougher. What if both apply to you?

What is forced retirement?

Some people are forced to retire. They’ve held employment at the same company for a while now and their employment contract states a specific retirement age. Their employment contract expires as soon as they reach retirement age. They are not allowed to work under that employment contract anymore. They must leave that company if they don’t get a new employment agreement.

What can you do if you don't want to stop working?

You don’t have to stop working. You obviously can’t have your old job anymore, but you can always apply for a new job. Find a vacancy that works for you and convince the company to hire you. This may also be a time where you need to reinvent yourself, so be open to new beginnings.

Perhaps you have some form of savings, but it may not be enough to support your retirement. Why don’t you use it to start a business? You have a wealth of experience accumulated over your career to help build your business. Your investment in the South African economy also helps to build this country.

Fincheck can even help you get started through some tailor-made business finance solutions. Check it out here.

Perhaps you can fulfil an advisory role. If possible, why don’t you consider serving on the board of a company? You could consult small to medium entities and help grow established businesses.

The basic action plan for retiring well

You may think retiring well is beyond your means. But you’ll be surprised to know that with planning and some diligent spending you can retire well. Obviously keeping in mind that you earn a specific amount throughout your career. Here are a few plans you could follow to retire well.

Keep It Simple

Don’t overcomplicate it. There are a few simple personal finance tips that remain true. A basic principle like to never spend more than what you earn will take you far. Learn how to keep these simple tips and prosper.

Adapt Your Lifestyle

So maybe this is a financial wake-up call. Don’t ignore it. Use your newfound urgency to retire well and change your life. Do you know what your habits cost you? Adapt your lifestyle to start saving for your retirement.

Get a Plan and Stick to It

You can talk all you want, but actions speak louder than words. Especially when it comes to saving for your retirement. Get a plan and start investing today. A couple can retire well earning R10,000 per month.

The short, powerful, gameplan for doing retirement well

The following 5 points will not magically make you rich overnight, but they are 5 bulletproof points suggested by most personal finance gurus to help the “normal” person out there to get “retirement ready”.

  1. Get a small emergency fund in place
  2. Snowball your smaller and short term debts (i.e. start small and pay off until it creates a snowball effect)
  3. Focus on maxing out your tax-free savings like a TFSA and RA
  4. Eliminate long term debts (including vehicle finance agreements and home loans)
  5. Explore other investment opportunities

Your retirement portfolio: Is it time to take your money out of South Africa?

If you look at the current political and economic state of South Africa, is it a good idea to rather invest your money abroad? What are the risks? And what are your alternatives?

It’s no secret, South Africa’s political sphere has been in distress for a while now. Though things have been showing some promising signs, we know it is far from what it can be. So it may serve in your favour to invest at least a portion of your money abroad. As a rule, it is a good idea to invest a part of your wealth abroad regardless of the political climate. It helps to diversify your investment portfolio.

But, South Africa still has great growth potential. It’s to your favour if your money remains fairly accessible especially if you have plans to remain in South Africa. Investing within South Africa may possibly increase the liquidity of your wealth (the ease to turn it into cash). So, yes it’s always a good thing to diversify, but there is still a lot to gain by investing and earning in South Africa well after their retirement.

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