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Most respondents say they will adopt a D-I-Y approach when planning their retirement income

Most respondents who participated in the latest Just Retirement Insights survey believe it is important to set objectives based on their financial needs, but more than 60% said they intend to decide what to do with their retirement money without consulting a financial planner.

Participants were asked, “Are you likely to decide for yourself what to do with your retirement money, without professional advice (paid-for advice from an accredited professional financial adviser)?”, 67% said yes, 30% said no, and 3% said they did not know.

Ironically, the survey’s findings highlight why professional financial advice is necessary in order to optimise retirement savings and income.

For example, respondents ranked having a retirement income that will last for as long as they live as their first priority out of seven preferences. This has been the case in the four surveys conducted since 2018.

Having the flexibility to decide how much income to draw each year dropped from second place in 2020 to fifth place this year.

But without financial advice, it’s unclear how retirees will be adequately informed of the features of the different annuity options (blended, life, living) and which is most likely to eliminate the risk of their running out of money, given their circumstances and needs.

Just SA said the prioritising of income security over flexibility suggested that the pandemic and other issues, such as accelerating inflation, “have served as catalysts to change the mindset of pensioners to one that is geared towards certainty”.

Chief executive Deane Moore commented: “When so many factors are uncertain and unpredictable, it’s natural to seek out security. This might explain why the preference for certainty that we saw established during the Covid crisis seems to have become a more permanent shift, as the world moves through another set of crises.”

The Just Retirement Insights tracking survey has been conducted since 2015, although there was no survey last year.

This year’s findings are based on responses from 380 respondents between 50 and 85 years, of whom 58% were between 50 and 64. The respondents lived in Cape Town, Durban and Gauteng. The fieldwork, which consisted of online and telephonic interviews, was conducted in March this year.

By monthly household income, 9% received more than R50 000, 34% between R20 000 and R50 000, 26% between R10 000 and R20 000, and 32% up to R10 000. Of the respondents, 51% were working, 47% had a diploma or university degree, and 67% were married or living with someone.

Respondents agree planning is important, but …

According to the survey, 45% of respondents were “really confident” or “somewhat confident” that their retirement savings will cover their monthly expenses in retirement, allowing for inflation, and assuming they live to 100. This is higher than in 2020 (40%) but lower than in 2019 (52%).

When asked whether they agreed or disagreed with importance of the statement, “I plan my finances. I set goals that I want to achieve and work towards that”, 83% said they “strongly agreed” or “somewhat agreed”. This is in line with the responses in 2020 and 2019.

Yet, in contradiction, only 52% – down from 74% in 2020 – said they were, in fact, saving or planning for the future, as opposed to spending money whenever they have it.

Only a third (33%) said they have not done any calculations of how much money they will need each year in retirement. But Just SA said this figure was “shocking” considering the age group of the respondents.

The reasons provided for not doing so included “will do so closer to retirement”, “don’t know how”, “don’t have enough to plan properly”, and the expectation that their spouse or children will provide for them in retirement.

Certainty is the top priority

Having a retirement income that will cover medical and frail-care bills re-emerged as the second priority after income sustainability. This dropped to fifth place in 2020’s survey.

Yet, only four in 10 respondents said they have thought extensively about planning for cognitive decline, such as dementia, while 93% believe their health is average or better than average for people of their age.

A retirement income that is not affected by investment market performance and that keeps pace with inflation emerged as respondents’ third and fourth priorities.

This is not surprising, as 70% of respondents said they would have to adjust their lifestyle if their retirement investments lost up to 10% of their value. Twenty-five percent said they could not afford to lose any of their retirement investments, and 29% believed they could lose between 1% and 5%.

However, respondents are also slightly less risk-averse, with 52%, compared with 65% in 2020, saying they don’t want to take risks when saving or investing. But this is still higher than in 2019 and 2018.

More will rely on their children

The survey found a sharp decline among respondents who said they would use their retirement savings to provide for their partner, down from 79% to 63%, or their children and grandchildren, dropping from 78% to 62%.

Although providing for offspring is less of a priority, the survey recorded a marked increase in respondents who intend to call on their children or grandchildren for support if their retirement money does run out: 57%, up from 46% in 2020.

Only 9% of respondents – down from 19% in 2020 – are confident that they will not run out of money in retirement. In other words, they do not believe they will have to look to their family, the government or friends to see them through.

Mismatch between perceptions and reality

As was the case with a survey by 10X Investments last year, there is a mismatch between people’s perceptions and reality when it comes to retirement.

Although external research shows that people need about 20 times’ annual income for a sustainable retirement, according to Just SA, the average respondent admits to having saved only 10 times, with many having not even saved twice what they earn.

What’s striking is finding that the less money respondents have saved, the higher the annuity rate they expect to receive. This suggests that people understand neither the relationship between their retirement capital and the annuity rate they can expect nor how an annual drawdown rate above 5% puts the longevity of their capital at risk.

On the subject of longevity, respondents, no matter their current age, underestimated how long they can expect to live. The average life expectancy for men and women is 85 years, whereas, on average, respondents think they will not live beyond 80.

The lower the respondents’ age, the more they underestimated how long they will spend in retirement. For example, female respondents currently aged between 50 and 54 expected to live to 74, which is 12 years short of their actual life expectancy of 86.

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