Advancements in technology mean that we are living longer and moving faster.
Everything is available at the click of a button, and even our communication is regulated by little blue ticks urging us to respond faster.
Then there’s the gig economy, which has ensured that plenty of jobs work on a contract to contract basis, making it difficult to plan ahead.
As Paul Leonard, advisory partner at Citadel, told BusinessTech:
“We can watch any movie, listen to any song, buy any book at any hour without having to wait for it – we simply click and download. Even fast food has become faster; if the dot on the box is the wrong colour because the delivery took too long and the food inside the box is cold, we get it for free.
Living like this means that most of us are just trying to make it through the day, never mind planning for a seemingly distant future.
Problem is, those days turn into weeks, which turn into months, then years, and before you know it you forgot to save and your retirement is pending.
And I know what you’re thinking – you don’t feel like reading about retirement funds when there’s a viral video to sneak in between deadlines. But trust me, you want to hear this. So here goes:
South Africans are not savers and the reasons for this are many, vast and multi-faceted, each aspect adding collectively to the toxic mix.
To deal with this predicament as individuals and as a nation, we need to identify, understand and act against these drivers, Leonard said.
During the 20th century, many companies offered their employees numerous benefits such as healthcare, pension, advancement and stable salaries.
Pensions operated on a defined benefit basis, where the retirement benefit is defined and guaranteed by a formula. The employer essentially underwrote the guarantees and in times of poor or low [sustained] returns, companies would have to shore up the fund by injecting money.
This meant that the company carried the risk. Since then the risk became a burden to employers, who decided to change their retirement funds from defined benefit funds to defined contribution funds.
“Company contributions rather than pension benefits are guaranteed, shifting the risk from the employer to the employee. Unfortunately, many defined contribution funds have woefully low contribution rates that won’t meet the expectations of their members at retirement,” he said
Which brings us to the marshmallow test.
Sounds delicious, but it’s actually a pretty bleak wake-up call.
The marshmallow test proves that we are our own worst enemies, Leonard said. “Most of us would rather have one marshmallow now than two marshmallows in 20 minutes’ time. This tendency has disastrous implications for our long term financial security,” he said.
Provident fund members for instance have access to their accumulated lump sums at retirement, and many would rather take the lump sum and spend it than invest it to generate an income over the remainder of their lives. “And if that isn’t enough, all of us presently have access to our accumulated sums at resignation,” Leonard said.
If you invest R5 000 a month for 40 years, while growing at 4% above inflation, you could have the equivalent of R5,8 million by the time you retire.
However, if you “eat the marshmallow” and cash that investment halfway through, you end up with just below R1,8 million. That’s a massive loss.
On average, South Africans chop and change jobs between seven and 12 times over an average 40-year working career. Most of us cash in our accumulated retirement savings whenever we do one of these job changes and start again.
The last change may leave you with only 10 to 15 years to go to retirement – your health permitting, of course. With only ten years of saving, the above investment drops to a lowly R734, 000.
What you need to do is get out of your own way. Here are some pro tips for turning things around:
Be disciplined today, and differentiate between your needs and wants. If you are patient, then you will have many more marshmallows throughout your life than if you eat them all at the beginning.
Use a budget planner, and whatever you earn, spend less.
Manage your debt. Settle it more quickly than the bank needs you to and then, as far as possible, stay out of debt.
Start saving 15% when you receive your first salary cheque, and keep saving until retirement.
Tomorrow will come, so prepare for it. Don’t neglect your savings or your insurance needs.
Lastly, be hungry for knowledge. Being financially literate is the key to financial freedom. Educate yourself, your kids and your communities.
When it comes down to it, getting your financial affairs together is something that you know you going to have to do sooner or later.
Yet given the jargon and noise out there, plus the difficulty of knowing in whom to confide, it’s not surprising we see personal finance as something to be put off for another day.
Lucky for you, Consequence Private Wealth can help you with that very necessary financial journey towards having a decent whack stashed away for your golden years.
So put down the marshmallow, and use that 20 minutes while you wait for the next one to get yourself a clued up financial advisor.
Then you can enjoy that second marshmallow without the stress of an unplanned financial future.
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