Historically the Sanlam BENCHMARK Survey has focused on institutional investors and pension funds. This year, however, there is a very strong focus on the individual member and their experiences of pre- and post-retirement. This has allowed us to draw meaningful conclusions about the behaviour of the individuals within these groups. It has also made the study more personal and has created findings that are more direct and insightful.
One of the questions that we asked the retirees is: "What advice would you give to young people who are still working and preparing for retirement?" Even though we have asked this question in previous years, the only difference this year is that we did not give the respondents a list of answers from which to select.
What was clear from all respondents was that saving for retirement should start very early in one’s working career. The earlier you start saving for retirement the better. You should aim to put money aside no matter how small the amount may be.
It seems many people just don’t understand the effects of compound interest. If you start saving early, you earn interest on interest. Over a longer time period this can significantly improve the amount you receive on retirement. This is generally referred to as the principle of compound interest.
To show the impact of not starting to save for retirement as early as possible we estimate that for each year you delay saving for retirement you will have to save an additional two percent of your annual salary over time - all other things being equal.
The second message which came through clearly is that individuals need to limit their debt.
This is a nationwide problem. Statistics compiled by National Treasury show that the ratio of national debt to disposal income deteriorated from 50 percent in year 2000 to about 75 percent in 2011. Therefore, for every R10 of disposable income, people on average use R7.50 to repay debt. Given that consumers then have less than 25 percent of disposal income competing for savings, consumption, education, etc. it comes as no surprise that people give less priority to savings.
The third message was that people should take retirement seriously.
The Sanlam BENCHMARK Survey statistics show that about 65 percent of retirees receive retirement advice 15 years before retirement. This is too late given that if you want to replace 70 percent of your income before retirement you will have to save at least 21 percent of your income for a period of 30 years.
Article continues on page two: retirees who managed to save for a comfortable retirement, saved for their children’s tertiary education and saved to meet all medical costs in retirement while earning less than R10 000 per month...