Only 6% of South Africans can afford to retire
Remember high school, when you were in a class of 34 people trying to find their paths through life?
Only 2 of those people will afford to retire in South Africa. The rest will likely be a burden on their families, or worse.
Now, you may be thinking quite smugly that this is because South Africa has a huge unemployed population, so this statistic is skewed. Obviously unemployed people can’t afford to retire, as they cannot even afford to live without government assistance!
Unfortunately, the 6% statistic takes that into account. It’s based on a survey of 15 million economically active South Africans with household income above R8,000 per month. This is our tax base in South Africa and just 1 in 17 of them can afford to retire.
It’s a shocking statistic that underscores so many of the challenges in South Africa. Households are effectively taxed twice, through paying for private healthcare and education on top of normal taxes. Our economic growth is exceptionally slow. Our savings culture as a country is almost non-existent and levels of financial literacy are low.
There’s no safety net for this. A government pension of R1,890 per month isn’t going to get anyone very far. These days, that’s two tanks of fuel in a small car and a few days of groceries.
The concept of retirement was invented by the Germans, who decided in 1883 that they needed to make space for youths entering the market. The German government elected to pay those over the age of 65 to stop working, thereby creating opportunities for young Germans to find meaningful employment and contribute to the economy.
We’ve come a very long way since then, not least of all in terms of life expectancy. In the late 1800s, German life expectancy was just over 40 years. Bluntly, there weren’t many grey-haired Germans running around who needed to be paid by the government to stay home.
These days, life expectancy in Germany is over 80 years. This trend holds true across the world, thanks to advancements in medical science and an overall improvement in global living conditions.
The economics of retirement have changed completely. People are working in meaningful ways far beyond the age of 65, so the entire concept is becoming foreign to younger generations. Do people even carry pensioner cards anymore?!?
Being able to work beyond the age of 65 is a blessing for some and a curse for others, but it certainly isn’t a guarantee. The rate of technological advancement means that people need to keep reinventing themselves to stay relevant in the workplace. That’s not easy when you are about to celebrate your 70th birthday.
Hope for the best. Plan for the worst.
The reality is that there will come a stage in everyone’s lives where they fall into one of four groups.
- The 6 percenters
- This is the ultimate – being able to kick back, play golf and spend time travelling to see the grandchildren. Yoga? Absolutely. Fishing? No problem. Summer in Paris? Maybe, with enough planning!
- Only 6% of the population will know what it feels like to have 40 additional hours of free time per week.
- Never stop working
- There’s no guarantee of this outcome – corporates usually require staff to retire at 65, so this is only possible if independent contractor agreements or other consulting arrangements can be found, which are becoming harder to come by as corporates replace retired staff with younger, cheaper employees.
- If it works out, then this brings an ongoing income that allows these people to live, but they certainly won’t play golf on Mondays and go for walks on Tuesday afternoons.
- Many clients I consult with are in this group, believing that they started saving too late and that the concept of retirement is insurmountable.
- If this approach doesn’t work out, then the next two groups apply…and this is where it gets ugly.
- Able to work, but cannot find employment or earn an income
- This one is scary – often through no fault of their own, such as through retrenchment late in life or forced retirement under company rules, people find themselves without an income and doors being closed in their faces.
- Unless you are self-employed or have highly specialised skills that can keep you in group two above, being in group three is the more likely outcome for those who plan to work past the age of 65. This is especially true for those who are on the wrong side of the employment equity requirements in South Africa.
- Unable to work
- Retirement due to ill health can happen at any age – bringing a loss of income accompanied by potentially severe medical bills.
- It is critical to have insurance products in place to mitigate this risk at a younger age.
- Above retirement age, being unable to work is a reality for many South Africans and having limited financial resources means that people become burdens on their families, thereby directly impacting the retirement plans of their own children.
Clearly, the first group (the six percenters) should be the goal. The second group (continuing to work) is risky and a roll of the dice, possibly impacted by numerous factors outside one’s control. The third and fourth groups are the sad realities for too many South Africans, who failed to plan and therefore planned to fail.
Without a family to fall back on, which is never the ideal outcome, government welfare becomes the only option. This is a disaster that every economically active South African must avoid at all costs.
Helping my clients achieve financially fit outcomes is what gets me out of bed in the morning. I’m always ready to discuss how you can avoid falling into the frightening groups.