Hey, Gen Y and Gen Z do you think you can retire comfortably?
Millions of South Africans rely on the money saved in their employers’ retirement fund to earn an income in retirement. For many people, this is their only formal savings for retirement. Unfortunately, too often, this money is still not enough to sustain them in retirement.
Being a young professional has its fair share of demands and complexities, with real day-to-day demands such as housing, transportation and health needs all perpetually competing for a share of your wallet. Retirement savings, quite frankly, is a low priority for many. But research shows that it is critically important for young professionals to take responsibility in reaching a reasonable income in retirement – the sooner the better.
According to the 2021 Alexforbes Member Insights publication 65% of members aged between 20 and 30 are expected to replace and live on less than 60% of their final salary when they retire because they have not saved enough during their working lives. Consider this: if you had retired today, could you live comfortably on less than 60% of your monthly take-home salary? This is expected to drop even further below 60% due to low contributions and not keeping retirement savings invested when changing jobs throughout the remainder of working careers.
Research by the publication found that a retirement fund member who has actively increased retirement fund contributions by 0.25% each year since 2012 would have achieved a 2% increase in salary contribution rate by 2020. A small incremental increase such as this can lead to an almost 10% improvement in expected retirement benefits for younger members.
The need for better solutions
The key underlying issues compromising pension outcomes are largely due to younger members:
choosing lower contribution rates to increase their take-home pay
having little or no access to relevant information
not clearly understanding what their options are at critical points in their financial journey
not knowing the long-term consequences of the financial decisions they make today
not having access to financial advice or financial counselling
There is mounting evidence that more people are realising how important the right information at the right time is and the long way it can go in supporting their financial journey and setting them in the right direction.
Digital member engagement solutions, financial wellness programmes and seamless in-fund and out-of-fund savings solutions all serve a valuable purpose in helping young members improve decision-making and the prospects of a more comfortable retirement.
Supporting this notion is the finding that 78% of retirement fund members want short-term and long-term financial planning (2021 Alexforbes Member Insights). It is clear that retirement funds cannot only be solving for retirement savings and income. Providing expert, holistic advice on retirement, group risk, health management, healthcare, investments, employee wellbeing solutions and skills development can help members make the most of their long-term financial futures. More members are realising the advantages of having access to holistic solutions that provide them with personalised information, engagement and advice to make better, informed decisions today while still helping them plan for tomorrow.
Enabling the good and mitigating the bad
Retirement might seem like a far-off reality – especially when you’ve just started working – but it is still a reality. Your money competes for a lot of immediate priorities, but a long-term priority can only be met in the present. While you might often feel like you are on a seesaw of financial instability and discomfort, finding financial services that can provide you with a balance of pertinent products and solutions during critical times in your career – s