You’re behind on your retirement savings. Now what?

Published Jul 13, 2022


By Dominique Bowen

If you’ve found yourself five years, a decade or even halfway into your working career with little to show for the savings you’ll depend on once you’ve hung up your proverbial boots, you are not alone. According to a report based on the 2022 Financial Sector Outlook Study compiled by Genesis Analytics in partnership with the Financial Sector Conduct Authority (FSCA), under-saving for retirement is an issue in South Africa – only about seven to 10 million individuals have retirement savings products out of an employed labour force of about 15 million.

Filling out the picture of the country’s retirement savings landscape even more is Sanlam’s 2022 Benchmark Survey, which found that 55% of retirement fund members had experienced reduced household income as a result of Covid-19, more than half had started living frugally, foregoing everyday luxuries, and nearly a fifth had accessed some sort of long-term investment.

Many people struggle to save at all for retirement, and a considerable portion of those who can have been up against the fund drain of job losses and other causes of reduced income over the past two years, amplifying the already dire retirement savings landscape. There’s also the concerningly large portion of workers who give into the temptation of accessing retirement savings when moving jobs, or at retrenchment, instead of preserving those funds in the appropriate savings vehicle.

If you’re facing this reality, here are some steps you can take to help yourself catch up on retirement savings and maintain some of the glow in your golden years when they’re on your doorstep.

Don’t just leave it

“The general rule of thumb is that by age 40 you should have at least 10 times your annual salary saved up in your retirement savings,” says Shameer Chothia, a senior consultant at MCA Consulting at Momentum Corporate. “Think about that: it’s a massive task. Plus, if you only start saving at age 35, you could have to give up almost 30% of your salary towards retirement savings to be able to retire comfortably.”

No matter how late you are to the savings game, beginning to strictly and intentionally put away funds in an investment such as a retirement annuity or pension fund is a critical step to rescuing your future self from a dire retirement.

If you don’t, the bigger your sacrifices will be to actually accommodate a savings contribution later down the line, having foregone the opportunity to take advantage of time in the market and the beauty of compound interest.

“The obvious sacrifice is your actual take-home pay,” says Chothia. “This then has a deeper impact on all items on your budget, as most aspects now need to be reduced to accommodate your contributions. You might have to give up luxuries such as take-outs, holidays or car upgrades, for example.”

Preserve, preserve, preserve

If the temptation to cash out your retirement fund is irresistible, fight the urge and you’ll thank yourself later. If you aren’t moving to a new employer, or will be in-between gigs, explore the option of transferring your savings to a preservation fund or private retirement annuity so your funds are protected from the tax attached to a withdrawal and your retirement can be safeguarded. “Preservation has a snowball effect,” says Chothia. “It allows for compounding to happen a lot sooner, as you come across to your next employer with a base lump sum.”

Push yourself

If you’re behind, the reality is that you need to push yourself that much harder to build your savings and give them the best chance of carrying you through your final years. We are also living longer now, which is even more of a reason to bump up your savings contributions – even for those who are on track.

Chothia suggests increasing your contribution rates, and doing additional voluntary contributions over and above the standard contributions. This means being disciplined enough to take large portions of windfalls, bonuses, SARS refunds and gifts and using them to top up your savings. “Take full advantage of the tax deduction benefit offered under the Income Tax Act,” he adds.

Cut these from your budget

Takeouts, holidays, designer threads … these are the most common expenses that you can put on hold. “Year-on-year inflation is really impacting household incomes and stretching salaries, so there is a knock-on effect on almost everything in a budget,” says Chothia. Reassess memberships and subscriptions and decide whether the value you gain from them warrants how much you’re spending. If not, downgrade or cancel.

Tie contribution increases 
to salary increases

Finally, look to your future earning potential and scale your retirement contributions accordingly.

“Try to tie increases to contributions to the same time in the year that you generally get a salary increase,” says Chothia. “This way you can embed that increase before already having received any additional income into your budget so you don’t feel it as much on a daily basis.”


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