Presented by CompareGuru
Written by Sherryn De Vos
What are the consequences of not saving for retirement? We take a look at the statistics, some of which might petrify you!
Many people believe that, from your very first salary, you should be putting 10% of your salary towards retirement. Realistically, however, the majority of people only start considering a pension scheme closer to 30 years old. This is if their company has not created a scheme for them. Only a quarter of people between the ages of 18-30 are saving for some kind of pension and retirement plan. This is dangerously low as only 6% of the South African population can actually retire comfortably. The South African Savings Institute has pinned this problem on various socio-economic problems including:
• Low disposable income
• Low employment growth
• The rising costs of living and the high rate of inflation
• A rising tax burden
• A lack of confidence in the future.
High levels of indebtedness among South African’s are hindering their ability to save for a comfortable future. The majority of South Africans are currently paying more toward debt than they are toward any kind of savings.
Here Are The Four Consequences Of Not Saving For Retirement
1. You Are Not Prepared For a Large, Unexpected Expense
Let’s face it, the older you get, the higher your risks become. Your health is a large risk and could potentially be your biggest cost. Should you or one of your family members become ill, you might not be prepared for the costs that come with the treatment needed. Medical savings and medical aid can only cover you to an extent, and extended stays in medical facilities could be detrimental to your savings.
Health aside, there are other increasing costs once you reach the age of 60. Insurance costs rise and your assets start becoming old and require regular maintenance.
2. You Might Need To Keep On Working
As much as this is happening more and more, it is becoming more difficult for pensioners to earn enough for monthly expenses. Getting a job becomes more difficult, the older you get, as companies are weary of hiring anyone past 50. Companies are more likely to take on younger employees than those closer to pension age. Also, keep in mind that, should you have little to no savings in place, the average nine to five will probably not be able to assist you out of a tricky financial situation.
3. You Will Need To Downsize
Should your savings not be able to cover your retirement, your only option will be to downsize. This will mean selling the house that you have worked so long to pay off. You might need to sell possessions and cars in order to live a smaller, more comfortable life. Trading your home that you have been building on for decades for a tiny apartment is not what you spent your life working for.
4. You Will Need To Start Relying On Your Children
Many families are put in this situation in South Africa and around the world. The parents end up moving in with their children, or into the granny flat in the garden. This is not only an inconvenience for you as the parent, but you are hindering your child’s saving potential. Allowing yourself to become financially dependent on your child simply creates a vicious cycle, as then they will not be able to save enough for their retirement. As much as parents believe that they supported their children financially for 20 years of their life, this line of thinking is grossly inaccurate and, instead, creates a more serious situation.
How Do You Fix The Problem?
Whether you are in your 20’s or 30’s, it is never too early to start saving. At 20, you have about 40 years to start building up a decent nest egg. Even though this sounds like a lot, and you think you can delay it, don’t. Inflation will continue over those four decades and the amount of money you can save in ten years could mean the difference between living comfortably, or finding yourself in financial trouble.
If you are in your 30’s, don’t panic just yet, but make sure to start your savings plan today! You will need to consider contributing more than you would have if you had started at 20, but you will thank yourself in 30 years.
The first step is to sit down and start taking a very serious look at your finances. You will need to be strict and hard on yourself. You will also need to realise that you will have to start cutting out on certain luxuries and going out as much. Create a strict budget and stick to it. Create a financial plan to start paying off your debt, but to also start a savings plan. If you can, budget down to the last R10!
Educate Yourself On Retirement Options
Whether you seek the advice of a financial consultant, or do the research yourself, it’s important to know your options. There have been murmurings that government will start gradually imposing a mandatory savings plan. The National Treasury is currently undergoing a reform process to start regulating individuals in order for them to set aside money for the future. This, however, is still in the pipeline, so rather than waiting for a guiding hand, take action yourself.