With only 6% of South Africans able to afford being financially independent during their retirement, the prospect of leaving the workforce at age 65 with enough savings to live off on is out of reach, according to Sharon Moller, Financial Planning Coach at Old Mutual.
Moller said that the traditional concept of retirement is not relevant to the way that the younger generation lives and works.
The reason for the generational disconnect is that employment in 2022 is vastly different to employment for past generations, as many young people struggle to find formal employment and must therefore work outside of traditional corporate structures.
A new narrative for the new generation
Moller said that for young professionals, the conversation needs to shift from the traditional concept of retirement, to making the money they earn work for them long term.
Young people need to think of retirement as another transition that comes when their lifestyle can no longer be funded by “paid work”.
“At this point, you need another source of income – typically in the form of savings accumulated over your working life. If you can keep working well into your sixties or seventies, you can push out the need to tap into your savings,” Moller said.
Lifestyle financial planning
According to Moller, lifestyle financial planning is more than just crunching numbers or ticking boxes to help young people grapple with fundamental questions.
These questions include:
– How do I make a meaningful economic contribution?
– What do I want to experience?
– What does financial freedom look like to me?
Moller said: “The result is financial decision-making motivated and sustained by a deep sense of purpose rather than an externally imposed, one-size-fits-all template.“
How should young people save?
The way people think and talk about retirement needs to shift, but most of the financial products and structures will stay the same, plus there are tax benefits such as tax-free investments and retirement annuities.
“New-generation structures within retirement annuity offerings allow people to stop and start their contributions whenever they need to without penalties or excessive red tape,” Moller said.
“This makes more sense for young people who are working from contract to contract with non-earning months in between.”
Understanding the stakes
The younger generation needs to understand the consequences of not having enough savings while they are working can be both be personally and socially devastating.
Moller said: “As financial planners, we must speak to the reality of young people’s lives and adapt our approach to match the way they work and think.”
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