How healthy living changes retirement planning

Behaviours that lead to inadequate savings

Inadequate funding is caused by behaviours such as saving too little or too late for retirement, failing to preserve funds when changing jobs, and increasing longevity. Combined, these behaviours have resulted in South Africa being in a savings crisis, in which 94% of South Africans are underfunding their retirement. This means that 94% of South Africans are unable to achieve at least 75% of their pre-retirement savings in retirement.

And while 75% of pre-retirement income is the desired income level in retirement, a 2018 study from Schroders found that most affluent South Africans are only achieving around 59%, a staggering 21.3% shortfall.

The three major implications of inadequate retirement funding are: financial ruin in later years, intergenerational debt as you borrow from your children and financial institutions, and increased state dependency.

Increased longevity is one of the biggest risks for retirement savings

While all the behaviours above affect retirement savings, the one most overlooked and underestimated is the impact of ever-increasing longevity. As longevity increases through healthier living, good nutrition and regular exercise, the gap widens between how much you think you need in retirement, and how much you will actually need given your increased years of life.

The below table shows how behaviour intervention can increase longevity.

Living five to 10 years longer than expected has a significant affect on the amount of income needed. This, combined with retirement savings that already fall short of the desired replacement value, can have a devastating impact on your retirement savings and standard of living.

Helping you enjoy your increased years of life

We continually aim to provide you with the best retirement solutions that enhance your standard of living, both in terms of wealth and health. We deliver on this effectively by using the power of shared value. Thus far, the Discovery Invest shared-value model has created over R7 billion in additional value for clients.

Also, by using the shared-value model, we have seen a significant change in the way clients save. Individuals engaged in shared-value investing save on average 3.27 years longer than other individuals. They make up to 173% more ad hoc investments into their retirement plans, and after retirement they withdraw on average 3% less from their living annuities every year.

A new way to model retirement planning

To help you help your clients better understand the impact of living longer on their retirement savings , we have developed the Discovery Retirement Modeller. It provides a personalised view of a client's own life expectancy and shows how savings, wellness and integration can help fund a long and comfortable retirement.

The Retirement Modeller clearly illustrates how behavioural choices influence life expectancy and retirement outcomes, and sheds light on a client's true individual needs.

I hope you will enjoy this issue

It is my pleasure to share with you our latest issue of Invest Insights. Among other articles, we share insights from the Sage of Omaha, Warren Buffett. New sketches from renowned New York Times columnist, Carl Richards, provide a visual way to work through key financial planning concepts with your clients. And we take an interesting look at the Fourth Industrial Revolution in a piece by Investec Strategist, Michael Power. We also bring you the latest updates on Discovery funds and podcasts from portfolio managers.

Please share your feedback with me by emailing Kenny.rabson@discovery.co.za.

Regards
Kenny Rabson
CEO of Discovery Invest