The big house, the sports car, the annual overseas holiday… if you have spent your working life envying your seemingly more affluent neighbour, then be patient: in retirement, your fortunes may well be reversed and one finds out that much of how we measured a person’s affluence by was a company perk, leased, or heavily financed. “Retirement tends to level the playing fields and if they have planned correctly, people with lower incomes during their working life are sometimes better off in retirement than those with higher paid jobs,” says Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits.
One of the outcomes of the 2014 Sanlam BENCHMARK Survey was confirmation that incremental and subtle savings variations can have a huge impact on overall retirement provision. In what was the 34th annual retirement survey, over 900 interviews were conducted collectively with retirement fund members, pensioners, trustees and principal officers. In addition to a core group of 250 pensioners, a further 50 pensioners representing the affluent sector of the market were also interviewed. ‘Affluent’ was defined as having income of more than R25 000 per month in retirement.
“What we discovered was that the affluent pensioners didn’t necessarily have a big head start. They just incrementally stacked the odds in their favour over their working lives, focusing on forward planning and saving bit by bit, month by month.”
More specifically, they:
- Started saving for retirement a few years earlier
- Saved more each month of their working lives
- Preserved their savings when they changed jobs
- Actively sought out good financial advice
- Re-invested their lump sum on retirement to bolster their retirement income
- Had additional sources of saving, such as other retirement annuities, property and shares.
The survey results revealed that whereas only 32% of pensioners in the core group believed they had saved enough capital to last them during retirement, 66% of the affluent pensioner group believe they have saved enough. The average period of contribution of the core group was 29.8 years, compared to 33.2 years of long-term contributions by the affluent sample.
“The single biggest reason why people do not retire with adequate provision, however, is that too many people take their withdrawal benefits in cash when they change jobs,” Van Zyl says. The survey results showed that 20.8% of core group pensioners withdrew their contributions at either resignation or retrenchment. Of these individuals, 63.5% withdrew their full benefit in cash which, in 52.4% of cases, was used to pay for rising living expenses. By comparison, only 12% of affluent retirees indicated that they withdrew from their retirement savings during their working lives.
With regards to financial advice, 88% of affluent retirees said they sought financial advice from professional financial advisers, as opposed to 58% of the core pensioners who looked mainly towards human resources departments, fund trustees or fund administrators for guidance.
“What we did find interesting is the choices of retirement options pensioners preferred at retirement age, especially in light of National Treasury’s possible introduction of a default pension product. Of the respondents in the core group, 63.3% indicated that they would have preferred complete freedom of choice with no restrictions from trustees. The opposite can be seen in the affluent sample however, with only 38% of these pensioners preferring freedom of choice and 62% showing confidence in considering input from trustees,” says Van Zyl.
The survey showed 38.4% of retirees reported having depleted their retirement lump sums early on in their retirement. It takes retirees on average 2.42 years to spend the lump sum received at retirement. “This is not surprising given that 32% of retirees still have debt in the form of mortgage bonds, credit cards, personal loans, store accounts and even vehicle finance.”
Overall, the 2014 survey suggests that only 29% of retirees are able to maintain their standard of living in retirement. The reality is that a very high percentage of pensioners are living with significant financial hardship, which could easily have been prevented. It does not require life-altering behavioural changes to realise your financial retirement goals.
The 2014 Sanlam BENCHMARK Survey again highlighted the importance of obtaining quality financial advice and the benefits of starting to save early for your retirement years. With these two building blocks in place, retirees should be able to look forward to making their retirement years the best years of their life.