Is there a downside to longevity?

We all hope to live long and healthy lives – and much of the information on our Tafta website is aimed at promoting longevity. But the irony is, the longer you live, the more money you will need to sustain yourself. So, along with looking after your physical health and wellbeing, it’s crucial to look after your financial health too.

South Africans are notoriously bad when it comes to retirement planning. A good rule of thumb is to save 20% of your take home pay. But, according to the South African Reserve Bank (SARB) the average South African spends 75% of his/her paycheque on servicing debt. Hardly surprising then, that only 6% of South Africans are able to save enough to be able to retire comfortably when the time comes.

Can you afford to retire?

Without sufficient savings, many older people find they cannot afford to retire. According to Sanlam Corporate’s internal member data, South Africa’s true retirement age – the age at which most people can afford to retire comfortably – is closer to 80 than the official retirement age of 65.

This has profound implications, both for individuals and companies. Older employees need to manage their health and skills to remain employable. Companies have to juggle the need to create opportunities for younger people (the sector with the highest unemployment rate) to enter the job market, against retaining experienced older workers.

How much do you need to save to retire comfortably?

Every individual has different needs and resources. But a very rough rule of thumb is to multiply the cost of your expenses by 300, and work towards saving this amount. The figure generated with this method should help you determine how much money you will need to maintain your lifestyle for 25 years after retiring.

Investing in a retirement annuity is a good way to manage longevity risk. Rather than paying out a lump sum, you can opt to receive a lower guaranteed income for life. Unfortunately, these products pay a fixed amount, which makes no provision for cost of living increases. This can leave you short if you live for 10-20 years beyond retirement.

Start saving as early as possible

For young people embarking on their first job, we cannot over-emphasise the need to start saving from the moment you receive your first paycheque. It not only gives you more time to build up a healthy nest egg, the power of compound interest – where you earn interest on your interest – means that your savings grow substantially beyond what you actually put away each month.

Regardless of how little you earn, aim to save at least 20% of your salary each month. Set up a debit order to deduct your savings at the beginning of the month. Don’t wait until the end of the month with the idea of saving whatever is left. And be sure to increase your payments in line with salary increases.

Avoid cashing in your retirement policies

When you change jobs, or at certain times you may be permitted to withdraw a lump sum from your pension or provident fund. Although it’s tempting, the consequences could have a devastating impact on your ability to sustain yourself during your old age.

Extend your working life

Many working people choose not to retire, but to continue working long past the traditional retirement age. If your employer insists on retirement at a certain age, you can still extend your working life by embracing a side hustle or starting your own small business, e.g. airport shuttle service, home-baked goods, garden service.

Longevity and good health

Funding private health care is one of the major concerns of older people planning to retire. At current rates you would need R1 million in the bank just to fund your monthly medical aid premiums. Although the new NHI has been signed into law, but there is still much confusion about how this will work, how it will be funded, and whether private medical aids will be discontinued.

If traditional medical aid schemes are unaffordable, you may want to consider cheaper options such as Dischem’s Medical Insurance which pays for visits to private doctors, dentists and medication. However, these plans don’t cover hospitalisation, surgery or specialist treatment such as chemotherapy. You may need a hospital plan as well.

What about the government Older Person’s Grant?

You can apply for a state pension if you are:

• Over 60 years of age
• A South African citizen, permanent resident or refugee
• Live in South Africa
• Earn less than R7 200 per month
• Have assets worth less than R1 227 600

If you are being cared for in a state institution or you receive any other social grant you will not be eligible. For more information, please visit the South African Government website.