The reality of retirement: Financial advisors must be the voice of reason

Financial advisors can add huge value simply by ending “analysis paralysis” and putting a plan into action, even if it is not immediately perfect.


The 2021 edition of the 10X Retirement Reality Report underlines the steadily deteriorating pension outlook for South Africans. Compared to the inaugural report published in 2018, even fewer now look forward to a comfortable retirement. This is evident across all age groups, demographics and income levels.

This partially reflects our ongoing economic malaise and partially the individual financial crises exacerbated by pandemic lockdown measures. But the survey also identifies another problem: a lack of engagement with the subject. Even among high-income households (those earning more than R50 000 per month), 70% of respondents worry about having enough money in retirement, suggesting that, for some, the problem is rooted in behaviour and inattention.

This lack of serious engagement prolongs people’s financial ignorance deep into adulthood. They don’t learn the financial facts of life until they feel the consequences of their disregard.

This ignorance is apparent in our notoriously poor savings culture, which typically manifests in saving too little for retirement, starting too late and not preserving fund proceeds on changing jobs. It is also evident in the lack of funds for a rainy day, the overuse of expensive, unproductive debt, and in self-defeating investment practices, such as paying away too much in fees and emotional decision-making.

Some of this behaviour can be put down to such personality traits as lack of conscientiousness and self-control – “systematic irrationality”, as National Treasury calls it. In others, intervention by way of financial education at school, financial advice during the initial work years and ongoing financial mentoring thereafter could lead to better outcomes.

Rallying for reform

The 10X Retirement Reality Report (10X RRR21) is based on the results of the Brand Atlas survey, which tracks the lifestyles of the 15-million economically-active South Africans in households earning more than R8 000 per month. Alarmingly, that modest cut-off already excludes two-thirds of households in the country.

Even among those who have the capacity to save, 79% fear they won’t have enough, or feel unsure. A mere 7% are not worried, likely drawn from those 8% of respondents who describe themselves as having “a carefully thought-out retirement plan that I am properly executing”.

For most people, the most pragmatic way to ease their retirement worries is to calculate the cost of their retirement and follow a sensible savings and investment plan to fund that cost.

There are online tools that will quickly produce such a plan, but relatively few people are aware that a retirement goal can be calculated, or that tools, such as retirement savings calculators, exist. Others will not feel confident about the output.

In the face of so many seemingly unknowable variables, such as retirement age, future income and expenditure levels, inflation and investment returns as well as annuity rates, it is not surprising that many people take a fatalistic approach towards retirement and just hope for the best, especially during their younger years. They will not go looking for an answer if they do not think there is one.

And, of course, it is one thing to print out a plan and quite another to put it into practice. Financial advisors can add huge value simply by ending “analysis paralysis” and putting a plan into action, even if it is not immediately perfect.

The failure to go through a proper planning process and to become more financially enlightened can manifest in hubris, unrealistic expectations and uninformed decisions. Even those with some sort of plan are likely to benefit from handholding. Thoughtful asset allocation and an understanding of what fees they are paying, and for what, could have a profound effect on the long-term investment return.

More than half the report’s respondents who are saving do not know the fees they are paying or think there are no fees at all. This talks to the potential benefit, for the less financially savvy, of having the various costs properly unpacked and explained.

Many retirement savers could benefit from encouragement to stay the course if the plan misfires over the short term. The most obvious and yet profound advice is alerting savers to the power and necessity of compound growth. Starting early is one aspect of this, preserving accumulated pension or provident fund savings another.

Among the respondents who belonged to a corporate scheme, almost two-thirds admitted they knew little or nothing about their fund. It is heartening, though, that only 7% were not really interested, while 36% said they wished they knew more. These numbers are surely a sign that fund administrators are failing in their communication, and that there is an information and advice gap in the market.

At 60%, the percentage of fund members who cash out their savings on leaving their employer remains stubbornly high and talks to a poor understanding of the consequences. The pandemic may have made this a necessity for some but, even before, exiting fund members frequently took all the money, whether they had an urgent need for it or not (and possibly because they were not alerted to the option to preserve all or a part of these savings).

Underlining this lack of appreciation of the role that compounding plays in a long-term savings plan, almost half the respondents believe they can secure their retirement in under 30 years, unaware that a 10-year delay will cost them half their pension. Which is why this message must reach its target audience in its twenties, not thirties.

These considerations are even more important for women, not only because they require a relatively bigger retirement savings pot than men due to their higher average life expectancy. The 10X RRR21 shows that the retirement readiness gap between the sexes persists and, by some measures, is getting wider. Given that women tend to spend fewer years in the workforce for family reasons, the initial saving years and the compounding effect become even more important. The message to women must be to maximise their saving during their early work years, ideally above the recommended 15% to make up for likely shortfalls later.

Divorce frequently causes a further widening of the gap. Too often, the wife’s share of a retirement fund savings is cashed out to make the divorce affordable for her. The numbers must be made to work without doing so.

Ishani Khoosal-Kala, Head of EB Corporate Distribution, 10X Investments.

The data also continue to show that women are less likely to take the steps required to narrow the wealth gap. Only 14% of women surveyed said they invested their money for growth. In total, 76% of female respondents indicated that they did not save, or, if they did, did not invest for growth. Until this changes, they have no chance of earning a decent income in retirement.

The report confirms that people across all income bands are worried about making retirement ends meet. This makes it not only an income problem, but also a savings problem rooted in a lack of retirement planning. This manifests as unrealistic expectations, uninformed decisions and goal-defeating behaviour.

Timeous financial advice may correct some of the poor saving behaviour; at the very least, it would dispel the illusion that this is a problem for another time.

The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice.
10X Investments is an authorised FSP (number 28250).