Warning! The retirement savings gap is widening in South Africa

Planning for retirement matters now more than ever, as the gap between what many South Africans have saved and what they need to retire comfortably is growing wider.

A survey by Credit Suisse indicates that while nearly 80% of South African retirees receive a pension, it replaces only 19% of their last salary, far below the 59% average among OECD countries. With inflation and economic pressures increasing, this gap is becoming more pronounced, leaving many unprepared for their golden years, Jonathan Nel, technical head for life and invest at Growth House, says.

He emphasises that the earlier you start saving for retirement, the more you benefit from compound growth. Delaying savings can significantly reduce the funds available when you need them most for retirement.

According to Cogence, more than nine out of 10 South Africans cannot afford retirement, often relying on their children for financial support. This “sandwich generation” phenomenon does not only affect retirees but also younger generations, creating a cycle of financial stress, Nel says.

“Saving for retirement is challenging, especially when daily expenses and debt repayments consume a large portion of your household income. However, delaying retirement savings only increases the risk of financial insecurity in later years.”

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Retirement savings gap: People living longer and saving less

Consumers must also remember that we are living longer, which means we have to save even more. “Advancements in healthcare mean that people are living longer, healthier lives. While this is positive, it also means that your retirement savings must last longer.

“For example, data from Vitality shows that South Africans who adopt healthy lifestyles can expect to live up to 83 years, adding to the challenge of ensuring financial stability throughout retirement. Longevity is both a blessing and a financial challenge. Ensuring that your retirement savings last through an extended lifespan requires disciplined saving and strategic investment planning.”

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Nel says the shift from defined-benefit pension schemes, which guaranteed a set income, to defined-contribution plans has placed investment risk squarely on individuals. “Combined with market volatility and global economic uncertainty, it is more important than ever to have a robust financial plan.”

He says this is where financial advisers play a key role. “By working closely with clients, they help set realistic savings goals, select the right investment strategies and ensure that clients stay on track.”

Health and wealth two sides of same coin

Nel believes that health and wealth are two sides of the same coin.

“Good health is essential for a secure retirement. Healthy individuals tend to earn more, save more and spend less on healthcare, allowing them to build stronger retirement funds.

“They can also remain in the workforce longer, whether full-time or part-time, extending their earning years and reducing the financial pressure on their savings.”

The bottom line, Nel says, is to start planning today.

“While the challenges of saving for retirement are real, proactive planning can help you to achieve financial independence. By working with knowledgeable financial advisers, you can take control of your financial future, ensuring a retirement that is comfortable as well as secure.”

Nel points out that after all, the decisions you make today determine the quality of your life tomorrow. “The future may be uncertain, but with the right planning and advice, a secure and comfortable retirement is within your reach.”