While almost half (47%) of South Africans list a comfortable retirement as their primary savings goal, according to the 2023 Old Mutual Savings and Investment Survey (OMSIM), South African families who participated in a financial lifestyle social experiment cannot save adequately for retirement.
Lizl Budhram, Head of Advice at Old Mutual Personal Finance, says this difficulty to save enough for retirement is contextualised by the OMSIM findings indicating that almost half of South Africans remain financially stressed and that seven out of 10 have not seen their income increase since 2020.
Therefore, it is unsurprising that saving for retirement appears outside the top financial priorities for the South Africans surveyed. In 2023 income security (63%), cutting expenses (58%) and paying debt (52%) are the most prioritised, while only 33% of respondents ranked securing their investments and 34% creating an emergency savings fund as a priority.
While OMSIM data reveals that 64% of respondents had a pension or provident fund in place and 51% had a retirement annuity, the Old Mutual social experiment, featuring eight South African families and a grocery store, provides a harsh reality check. In a grocery store recreated by Old Mutual, each family’s breadwinner was asked to fill up a trolley with their usual supply of monthly goods, scanning each item as they went along.
They didn’t know that the prices were adjusted for inflation based on their predicted year of retirement, and the provided budget was based on how much they would receive as a pensioner once they retired. Findings revealed a significant retirement savings shortfall, with some families discovering that they were over budget by amounts ranging from 100% to 800%.
“Our follow-up with four families highlights their persistent challenges and financial constraints. People need to pay much closer attention to their retirement savings: what will they need in retirement? Will the savings be enough to cover these needs? Most people will likely find that they need to increase their savings, which is not easy in the current economic environment. Postponing retirement is an alternative option which can also be considered.” says Budhram.
One family deeply affected by the experiment is the Tifflins. Their biggest realisation was that they needed to be more open about their finances and recognise how close they were to retirement.
“While we have made sacrifices to reduce our debt every month since the experiment, we are still unable to initiate a proper savings plan due to our lack of available funds. We are determined, however, to start saving towards retirement,” says Mr Tifflin.
Budhram says the Tifflin’s ongoing struggle to save highlights many South African families’ financial obstacles.
Similarly, the Greek family had a rude awakening when they realised their tendency to overspend on luxury items would have dire consequences for their retirement years. While they have made efforts to cut down on specific areas of spending and pay off their bond, they still need help allocating sufficient funds toward retirement savings.
“We have not consulted a financial adviser, and our focus remains on immediate financial priorities. Although we are more aware of our need to save for retirement, it is difficult to save regularly today,” says Mrs Greek.
The Matewane family’s biggest realisation from the experiment extended beyond the struggles of financial management and making ends meet.
Mrs Matewane, a single mother, says that while she cannot increase her retirement savings contributions, she has decided to enrol her children in a more affordable school, allowing her to allocate additional savings toward their tertiary education.
“It was not an easy decision, but I now recognise the importance of financial planning. I intend to consult with a financial adviser early next year to develop a comprehensive education plan so my children can attend university,” she says.
In contrast, the Khumalo family seized the opportunity presented by the experiment and promptly took action. “We started a retirement annuity and have been actively contributing to it, and it’s been such a relief, giving us certainty about our financial future. To optimise our savings, we have engaged with our financial adviser, whom we underutilised in the past. We have since had two meetings to assess and update our current policies,” says Mrs Khumalo.
Budhram says financial constraints, changing life circumstances, and struggling to juggle competing priorities are real challenges, but solutions exist.
“The experiences of these families underscore the larger issue of a retirement savings shortfall affecting South African society. Despite the wake-up call provided by the experiment, the reality remains that many families are still unable to save sufficiently for retirement. This ongoing challenge necessitates a deeper examination of the issues that impede families from securing their financial future.”
Budhram says families and individuals must seek professional guidance to address pressing issues, such as options and alternatives when creating a workable retirement plan, limited access to affordable financial products and services, or a debt burden that has become unmanageable.
“The stories of these families should serve as a call to action for policymakers, financial institutions, and society at large to prioritise retirement planning support and financial education,” says Budhram. “By addressing the underlying barriers to saving, South African families can be empowered to take meaningful steps toward building a more secure retirement.”