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Retirement Planning
Wednesday, September 17, 2014 - 02:16
Baby Boomer lessons

As South Africa’s so-called Baby Boomers reach retirement age, around a third have no formal provision for their retirement and face the prospect of hardship. This serves as timely reminder for Generations X (born 1965 – 1979) and Y (born 1980 and after) that the sooner they get good financial advice and take control of their financial future, the better.

That’s one of the key findings of the ninth Old Mutual Savings and Investment Monitor survey released today. Lynette Nicholson, chief researcher at Old Mutual Emerging Markets, says, “It’s painfully clear that many Baby Boomers (those born between 1946 and 1964) face hard times and that their families will bear the brunt of that. Nearly half (46%) of Baby Boomers believe their children should care for them, and 63% of respondents (70% in black households) expect to support family members in the future when they are old.
“This is a good opportunity for all South Africans to take a rational, clear look at their ‘pre-retirement’ situation and act on the lessons of the Baby Boomers. Young people (those below the age of 35) constitute over 50% of the South African adult population and need to grasp the urgency of saving and investing effectively as soon as possible.
“Most South Africans are aware of the importance of planning for their future (80% of respondents want to learn how to save), but many haven’t translated their awareness into action yet: about 30% haven’t seen a financial adviser and approximately 30% do no budgeting at all.”
Many South Africans do try to save, of course, but as many as 33% of the respondents have made no formal provision for retirement. Even in the upper income category with households earning more than R40 000 a month, 12% still have no formal retirement provision. Staggeringly, 50% of the overall sample believes that saving for death, funeral and disability cover is more important than saving for retirement.
Nicholson says that the economic slowdown and steadily rising living costs, including the highest petrol price in five years, have all had their impact. Only 9% of respondents say they’re “living comfortably”. Confidence in making financial decisions has slipped from 7.2 out of 10 in 2013 to 6.9 and Baby Boomers have the lowest level of confidence in the economy, at 47%.

It’s never too early to get started

Efficient saving and investing can make the difference between security and insecurity in retirement, Nicholson points out. A breadwinner earning a modest income who gets good advice and who harnesses the power of compound interest is likely to be in a far better financial position than someone who earns ‘big money’ but doesn’t know where it all goes.
“Our task as an investment house with 169 years of experience and wisdom is to help people in both positions know what to do to grow what they have.”
What’s concerning is that many South Africans in lower income groups are reluctant to get financial advice because they don’t believe they earn enough to warrant it. The very income sectors who lack confidence in their financial decision-making and who are the most in need of financial guidance are the least likely to have a relationship with a financial adviser.
“Lack of financial planning lies at the root of most financial problems. Regardless of your income, you will be better off with a good financial plan.”
What’s also troubling is that while 44% of survey respondents still believe their financial situation will improve in the next six months, many still don’t have a real idea of the state of their finances. When asked how they keep track of their finances in their main transactional account, 71% say they check their balances, 46% regularly check incoming and outgoing transactions, 22% look out for suspicious or unusual transactions, 20% compare slips against statements, and 16% compare their spending with previous months. 10% do nothing at all.
She says, “Knowing better provides an opportunity to do better. Good, relevant advice is the answer. Our aim as a premier investment house is to share our research findings to help activate and encourage a healthy savings culture in South Africa.”
 

Copyright © Insurance Times and Investments® Vol:27.9 1st September, 2014
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