Retirement

Retirement planning in reality

To truly break the cycle of poverty and start creating generational wealth, young working professionals need to prioritise saving for retirement. Leaveil Des Fountain shares his story to explain why.

I am proudly South African in every way and my story is potentially that of many. The reality is that retirement planning is not something most of us want to think about, let alone talk about. It means we have to think about getting older, not being able to work, becoming frail and ultimately dying. But the topic of money is no longer taboo, and we should speak about it. The narrative is ours to change. This is my story. 

At 26 years old I already knew that my parents did not have enough money to retire and I also knew that it was my responsibility to ensure that they could retire comfortably. After all they have sacrificed for me, I am grateful to be in a position to be able to do this for them. I invested in a property, not for myself, but for my parents, because I knew they would need a place to live in the future. 

Fast-forward eight years: I am 34 years old and have to sit my parents down to tell them they need to sell the house that they have lived in for over 30 years and move into my flat, because selling their house is the only way to fund their retirement. It is not a fair discussion. It is not a discussion any child wants to have with their parents. 

At the same time, I needed to accept that at some point in the near future my flat will no longer generate rental income. That is a tough thing to accept and to plan for. It is a responsibility I am proud to fulfil, but it is an example of the implications experienced by a family when there isn’t enough saved. That brings me to my biggest fear: repeating the cycle.

Inter-generational implications: It’s up to us to be the change

My parents’ reality is not their fault. My father had a pension fund but when he transitioned from teaching at a public school to a private school he was told, like many other teachers, to “take the package”, and so he did. He used that money to put us through school and university and to put food on the table. 

My grandmother’s retirement plan was and still is the South African Social Security Agency (SASSA) queue: Waiting for hours on end for a R1 800 cheque, which is enough to sustain her lifestyle – something few of us are able to say today. She did not have the opportunity to make money. 

My mother always said to me: “I don’t want your money; your money must be yours.” It’s a nice thing to say but in reality it is not possible. At the end of the day, if you don’t have a retirement plan, you will be reliant on others. 

Over the past 25 years, our lifestyles have changed drastically. The majority of the people in South Africa were previously not allowed access to half of what they can access now. Of course this is hugely positive, but it comes with the downside: greater expenses and debt. If we neglect saving for retirement we will be reliant on our children like our parents are reliant on us. It’s up to us to break the cycle.

Actively engage in your future

Life is a test series and most of us are currently living like it’s a T20. Pre-1994 our parents did not even know if they were going to live to see the next decade, they did not know life was a long game, but we do. According to Stats SA, from 2002 to 2018, average life expectancy for men increased from 54 to 61 and for women it rose from 58 to 67. This increase indicates that most South Africans are living longer due to medical advances and other factors. And yet, we are still not prioritising retirement. 

Only 6% of the country’s population will be able to retire comfortably, according to National Treasury. Ironically, a survey conducted in 2018 found that South Africans are more eager to put money into a funeral policy or a burial scheme than a pension fund or retirement annuity. This shows that people are able to think about and prioritise their future but for some reason there is a mental block to retirement.

Many employees abdicate the responsibility of retirement savings to their employer. But your future needs your active engagement. Even if your employer is saving on your behalf, you could consider supplementing their contributions. There are several avenues to explore in your personal capacity, including retirement annuities, tax-free investments and unit trusts. 

Saving for retirement is not exciting or gratifying right now. It does not give you the thrill of a new sports car. It does not provide you with great content for your Instagram feed. But what it will do is ensure that you can still live as a financially independent individual when you stop working.

Shift your mindset

And finally, if you think you have too little to save for retirement, think again and think hard. Making space is challenging, especially when you are supporting children and parents. But the line I take, and the message I give my friends and siblings, is that not saving is not an option. 

Families need to talk about their finances, set goals, create plans and be honest. If you are able to change your mindset and shift your priorities, your family will not have to have the difficult financial discussions that I had to have with my parents. Your family’s generational wealth will not change if you do not make the moves to build it.

Craving generational wealth is not enough. We cannot change our narrative without sacrifice and discipline. It’s time to be the change you want to see. Start by taking these five steps:

1. Assess your spending habits and create a budget

Keep a running total of everything you spend in a given month. You may find you are spending too much on items you don’t really need. Once you have an idea of where your money is going and where you can potentially cut back, draw up a budget. This will help you to understand how much of your income needs to go to fixed expenses and how much is left to play with. 

2. Identify your goals

A budget is the first part of your financial plan and gives you a good idea of where you are currently. The next step is identifying your goals and putting a process in place to achieve them. Your saving goals could include your retirement, your child’s education or a holiday. 

3. Understand the options available to you

Take the time to research investment managers and what they offer. There are different products available to suit different goals. Talk to an independent financial adviser if you need help understanding what is right for you. 

4. Get your family on board

With careful planning you can structure your finances in such a way that you are still able to support yourself and others. Sit down with your financial dependants and give them a clear picture of your finances. This will set clear boundaries and help you to manage their expectations – and your budget. 

5. Don’t procrastinate

Each month that you put off saving in favour of spending pushes out the date at which you’ll reach your goal. Putting off saving for 10 years can chop a massive 40% off your end amount.

The financial services, products or investments referred to on this website are not available to persons resident in jurisdictions where their availability or distribution would contravene local laws or regulations and the information on this website is not intended for use by these persons. This website is for information only and does not in any way constitute a solicitation or offer by Allan Gray Proprietary Limited or any of its associates or subsidiaries (collectively “Allan Gray”) to buy or sell any financial instruments or to provide any investment advice or service.

By selecting one of the countries below I confirm that I have read and understood the above and that:

(a) I am not a South African citizen; or 
(b) I do not reside in the Republic of South Africa; or 
(c) I am not otherwise a person to whom the communication of the information contained in this website is prohibited by the laws of my home jurisdiction; and 
(d) I am not acting for the benefit of any such persons mentioned in (a),(b) and (c) and 
(e) I confirm that any investment with Allan Gray is based on my own initiative and not due to any offer or solicitation by Allan Gray.