Most South Africans aren’t saving and investing enough for a comfortable retirement, and many of those who are saving (for retirement or otherwise) aren’t doing so smartly. This is the harsh reality.
A comfortable retirement?
According to the latest Sanlam Benchmark Survey only 48% of South Africans contribute to retirement funds. Additionally, just 19% of members in stand-alone funds and 14% of members in umbrella funds will be able to maintain their standard of living when they retire.
To maintain your standard of living when you retire you need around 75% of your annual salary saved for each year of retirement. Sadly, most South Africans are left with only about 40% of their annual salaries.
So, where’s the money?
South Africans might not be saving as much for retirement as they should be or investing enough in general, but that does not mean that they’re not saving at all. Many are indeed putting money aside each month. About 15% of their income, according to research by Old Mutual.
Currently, the most prevalent way of saving money is simply keeping it in a transactional bank account – 45% of South Africans save this way.
A further 38% use a separate savings account and 20% put money into Stokvels.
According to research by the National Stokvel Association of South Africa, some 11.4 million South Africans are members of Stokvels. Stokvel members pool savings and take turns receiving a fixed amount on a regular basis, however, this money is generally used on items like food and clothing – so saving in this way does not help people create wealth. Putting money in a Stokvel will only help build wealth if people start reinvesting their Stokvel payouts.
This is true for most ways of saving money, including putting it in a savings bank account. Most bank accounts have an interest rate well below inflation, which means that they cannot offer financial growth in the same way an equity-based investment can.
Some South Africans do in fact invest (rather than simply saving) their extra income, but it’s only a fraction of the population. According to the Old Mutual Savings and Investment Monitor, only 7% of South Africans put their money into savings products/policies that allow them access to funds and a mere 2% buy financial equity-based investment products, like unit trusts.
Are millennials getting it right?
In some ways, South African millennials are doing better than older generations when it comes to investing. The 2017/2018 Old Mutual Millennial Survey states that 24% of millennials are currently invested in a unit trust, compared to only 2% of older South Africans.
However, this age group still has a long way to go to achieving financial freedom. While they might be saving and investing slightly more than older generations, they also have more debt. The survey revealed that 64% of millennials – compared to 14% among older generations – had a personal loan and 35% (versus 13%) of their income was spent on servicing the interest on debt.
However, investment products are becoming more accessible, and the hope is that more South Africans will realise this and start putting their money away smartly.
Tech enabling investment
Technology is making it easier than ever before to access investment products and invest smaller amounts on a monthly basis.
One example of this is robo-advisor platforms, many of which already exist. The services of these platforms generally cost less than traditional financial advice – the average investor pays at least 3% in investment fees, whereas robo-advisors generally charge less than 1% – so there is the potential to save a lot.
Some robo-advisors also cater for smaller investment amounts (as little as R100 a month). Combined with lower fees, this opens up investment opportunities to those who were previously unable to afford it.
What’s more, it’s incredibly easy – South Africans can start investing at any time, and can manage their investment portfolios at home, in a coffee shop or even on the move. Investment no longer requires setting up a meeting with a financial advisor, making your way to the meeting spot and filling in a scanning loads of forms. The future of investment is easy and accessible.
Through technology, the average South African keeping their money in a bank account can have their very own investment portfolio within hours and start reaping the rewards.
So come on South Africa, what are we waiting for?