The journey of financial discipline for a comfortable retirement

August 26, 2021

Amidst the current era of uncertainty, where people face challenges of many kinds, financial and otherwise, the Government is proposing lifelines to keep their citizens afloat. Our former finance minister, Tito Mboweni filled us in on pending debates to assist those suffocating in a noose of financial distress by allowing limited withdrawals from retirement saving vehicles, alongside increased preservation. This amendment to the legislation will only be implemented in 2022 at the earliest; however, it was a matter of days before enquiries trickled in from members (prematurely) on how to apply for this prospective lifeline, which could, for the first time, permit access to retirement funds prior to termination of service. However, this allowance could come in the form of a proposed two-bucket system to accommodate short term financial relief and long-term financial security.

This urge of accessing these funds whilst under employment is long existing in the industry and has been exacerbated by further financial hardships owing to national lockdown interruptions. Judging from SA’s general savings culture (or lack thereof), – it will come as no surprise for this fraternity to see a significant handful of these investors trying to get their hands on their retirement pots to meet their immediate needs. While this may be the case for many, it can be expected that a handful of these applications could well be unwarranted, notwithstanding the qualifying criteria that will accompany the concession to be granted early access, often with disregard for the implications of this action on their retirement outcomes.

It is paramount to highlight that building wealth with the most modest of salaries is achievable for individuals with diligent saving habits. The prominent narrative of postponing this discipline for when one earns more in future; has proved fatal for financial independence upon retirement, even without this proposed and inevitably colossal disruption of withdrawing your retirement savings. The legislation is intended to assist those in genuine need of this well-intended financial relief; however, it must be kept in mind that it comes at a significant cost to your seemingly far off retirement years. This requires a balancing act that demands difficult and precarious decisions, even with the much-needed guidance of a competent financial advisor.

As it stands, just under half of our citizens do not have retirement savings at all, and of those who do, only about 6% can retire comfortably, according to estimates by the Treasury.

As worrisome as these figures are, the Sanlam Benchmark survey confirms that 41% of employers who have established retirement funds for their staff, suspended contributions (for a period) to these savings in 2020. This has further placed a strain on accumulating sufficient retirement savings. This was done to mitigate the economic struggles faced by employers and/or their employees. Undoubtedly, saving for retirement has become a nauseating expense that will for some time be shifted further to the sidelines – with a focus on immediate financial obligations over long-term saving aggregation.

As bleak as the retirement outcomes look for the vast majority, generally, the size of adequate retirement savings is very often underestimated. Many employees are unaware of the need to save at least 15 times their annual salary to maintain their lifestyle post-retirement; and few realise that about R1million (saved in an average working life of 40 years) will purchase an annuity of approximately R5000 every month, according to Andre Tuck, Senior Investment Consultant at 10X Investments. Women, with higher life expectancy than men may very well need more to retire at this level of income. A member can view their mouthwatering retirement fund balance on their fund benefit statements, and in many cases, it is most likely to prove far from adequate when your retirement is approaching. In addition, an even further detriment could be for those considering early retirement.

A worthwhile deduction could be to consider saving as much as you possibly can, no matter how insignificant it might seem, as it will make a visible and much-needed difference to the accumulation of retirement savings.

Paul Nixon (Head of Investments Behavioural Finance at Momentum Investments) refers to how impractical it is to work on the mindset of wealth being a function of income, but should be considered as a function of saving – if you want to see yourself in a good and sound position to retire comfortably.


Article written by

Chris Ntlama

Retirement Fund Consultant

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