Women and Retirement Planning
Women and Retirement Planning
It is said that South Africans spend most of their time planning for the first two-thirds of their adult life and most of their working lives accumulating assets and capital to satisfy their immediate material needs. They do not give much thought to the last third which starts when they stop working at retirement age. Research has shown that only 6% of South Africans can retire financially independent. It is therefore important for women to ensure that they put plans in place to not become part of this bleak statistic in future.
In the financial planning arena, we encourage our clients to start making retirement provision as early as possible. Many do, from the time they start their first job and only, because in most cases, it is compulsory. Saving from this young age is difficult because so many other things are needed - when one settles down and starts a family, the demand on income is greater – particularly for women. This results in only the minimum being saved for retirement and, as we will see later in this article, it is not nearly enough. South Africans also have a tendency to change jobs regularly and with that, more often than not, draw and spend their pension. This results in them spending their retirement capital, and then they have to start saving from scratch.
This is where retirement planning is important. We looked at some questions women may have:
What is retirement planning?
Retirement planning consists of a comprehensive process of needs-driven analysis, advice, product and fund recommendations and, lastly, regular monitoring of the status of the retirement plan. In other words, the financial planner will follow the 6-step financial planning process, concentrating on the client’s retirement requirements.
What is the role of the financial planner?
The financial planner plays an important role in the client’s retirement planning. Besides encouraging the client to start making provision as early as possible, the financial planner also assists the client to make sense of their current retirement plans and to do appropriate planning to ensure that the client’s retirement funds provide sufficient income after retirement.
In his book, 7 Habits of highly effective people, Stephen Covey states that one should “begin with the end in mind”. When looking at retirement planning, it is important to first establish the client’s end goal, in other words, how much money does she need to have saved by the time she retires. Experts in the industry believe that seventeen times your last gross annual salary should be a sufficient amount of retirement capital. This capital they claim will provide a client with an income of 75% of their pre-retirement salary, provided of course she has no major debts, such as a mortgage, or additional dependants, and can cut back on her lifestyle.
Once the financial planner has determined how much growth the client will require from her investments to achieve the objectives, the next step would be to find suitable products and investment funds that would address the needs and goals. Retirement funding can take place in various ways, whether through a formal retirement fund, such as a pension, provident or retirement annuity fund, or making provision in the form of savings, such as unit trusts or endowment policies.
The last step in the 6-step financial planning process requires the financial planner and the client to take the time to review and monitor the retirement plan. This is an important step that allows both parties to check in, take any changes in the client’s circumstances into account, and ascertain that what is being contributed towards retirement is still on track to meeting the client’s retirement goals.
A last word: retirement planning is a useful tool, but at the end of the day the client’s good or bad savings habits will have the biggest impact on what is received at retirement age. In the month that we celebrate women and the big strides they have made in history, let us also ensure that in respect of their retirement provisions, it is also a success story.
Article was written by Michelle Swanepoel
Lecturer in the School of Financial Planning and Insurance.
23 Aug 2018