Across the world, people are retiring later than they used to. However, retirement products are centred around set retirement ages, at which point you’d be able to access your retirement savings.
But how applicable is the current retirement age in South Africa? We had a look at the history of the retirement age and whether there’s any value in changing it.
Tip: Make sure you’re set for your golden years by taking out a retirement annuity today.
The origin of the retirement age
According to Craig Turton, vice president of business development at Purple Group, retirement was first introduced in Germany during the 1800s.
“It was used when men who did manual labour could no longer physically do their work, and they set the retirement age at 70. But in those days, people barely lived that long, so most of them worked all their lives,” says Turton.
By the mid-1800s, the United States of America also implemented a pension plan for municipal employees, such as police, firefighters, and teachers. By 1875, private companies also started offering pension plans to their employees and retirement planning grew.
South Africa followed a similar trajectory, and in the 1920s the government also introduced tax incentives to encourage both employers and employees to save for retirement.
“In today’s world, there’s more focus on work-life balance, and this needs to be applied to our finances as well. We need to find the balance between spending and living now versus saving and investing for one day when you want some flexibility,” he explains.
As a result, he believes that the word “retirement” is being phased out. Many people are now also considering other options, such as achieving Financial Independence and Retiring Early (or FIRE). Have a look at this Q&A with a local blogger who’s pursuing this.
Should the retirement age change?
Turton says that the current minimum retirement age for South Africans is 55. He explains that this is when you can start to access some of your retirement products.
However, he points out that if you are employed in a company that has a pension or provident fund, you are bound to the retirement age set in that fund, which is usually 60 or 65.
“Companies set these ages to allow new employees to enter the business. Besides this, you may need to slow down physically and perhaps cannot contribute the way you used to at these ages,” says Turton.
But he doesn’t believe this type of system is applicable any longer.
“People are healthier because they’re looking after themselves physically and medicine has improved. Therefore, people can work longer – even into their 70s or 80s,” says Turton.
“I believe we can still contribute later in life. In fact, I would argue that we have even more to offer then. Increasing the retirement age in companies is definitely an option for the future,” he adds.
What are the pros and cons?
Turton says that if the retirement age was reduced, this may give your employer more options in terms of their employment structure.
But he considers this concerning, and he questions why a company would want their staff to retire earlier. However, if the age is pushed out, this would offer peace of mind that jobs are secure for longer.
“By working longer, you are also able to save more in your retirement fund. If your employer contributes on your behalf, you have the benefit of their extra contributions too,” says Turton.
“People are looking for more flexibility in their later years, rather than just retiring. If employers are able to find that common area where they still receive value from their employee and the employee can stay on for longer on their own terms, I believe it will be a win for both sides,” he explains.
What else should you keep in mind?
Turton offers the following tips to help you make informed decisions about your retirement savings:
- If you have a pension or provident fund at work, keep contributing and increase your contributions if you can. If you leave your employer, do not cash in your retirement savings, but rather transfer them to your new employer or keep them in a preservation fund.
- Use a Tax Free Savings Account (TFSA). The benefit of this is only really enjoyed after 10 years, so use this is as one of your long-term savings plans.
- Use a retirement annuity to get some tax deductions against your salary. This is a nice way of forcing you to save as well.
- Invest offshore, either in shares or unit trusts. Gaining offshore exposure is important in any investment portfolio, especially in your long-term strategy.
- Understand your needs for your vintage years, what income you will require, whether you will still be educating your kids, and whether your debt will be settled. Have a game plan for 20, 30, and 40 years from now.
Turton’s advice is that if you can afford to retire, you should still contribute to work or society and keep your mind active. He believes you shouldn’t retire from something, but rather retire to something.
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