Retirement isn’t quite aligned to the time we live in. It’s also not reflective of an individual’s personal state of wellbeing, which is linked with biological age.

Age is only one factor to consider when it comes to retirement. Populations are up against a tricky combination of challenges that have a direct impact on retirement savings. The question is: can anyone afford to retire comfortably?

The risk factors at play in today’s retirement reality

Populations are living longer

Today’s global population consists of more than 7.7 billion people. Per generation, millions are transitioning from the world of work. For context – between 2010 and 2030, an estimated 370 million baby boomers of the post-war era will be retiring.

“Alongside rapid population growth, scientific advances in medicine, improved standards of nutrition and healthier lifestyle choices have given rise to what’s been dubbed ‘the longevity revolution’,” says Discovery Life Deputy Chief Executive, Gareth Friedlander.

Healthier living really does contribute to improved physical and mental health outcomes and longer life spans. This is where the concept of biological age comes from.

A 65 year old today is in a far better state of health than a person of the same age as little as 70 years ago. One could say that 65 is the new 51.

Friedlander adds, “At Discovery, we’ve seen that Gold and Diamond Vitality status clients can live as much as 24 years longer than the average South African (around 65 years) and in a healthier state. The effect is that planning for retirement needs to factor in, firstly, longer retirement periods and, secondly, generating enough income to support potentially more than two decades of additional lifestyle needs.”

The majority of South Africans are not saving enough

According to a poll conducted by Business Tech in January this year, more than a third of middle-class South Africans are not contributing any of their income towards retirement savings. Of the poll participants, 61% are saving no more than 10%, and only 23% are saving more than 20% of their salaries each month.

“According to our National Treasury, contributions towards pension, provident and retirement annuity funds pre-COVID-19 amounted to at least R246 billion, with the largest contributions – around R100 billion – being made by employers to pension funds,” says Friedlander. “We have noticed that preservation levels in these funds are low, especially when clients change jobs. So, replacement values when these individuals retire are low too.”

According to Credit Suisse Research Institute, pre-COVID-19, a South African with an income equal to the national average would receive a pension which would make up approximately 19% of their last earnings only.

Younger generations are still highly underinsured and only start thinking about latter life, later in life

“Not only are younger generations significantly underinsured, they’re also only taking retirement planning seriously around the age of 40,” says Friedlander.

According to the latest Association for Savings and Investment South Africa (ASISA) insurance gap study, 9 million of South Africa’s 15.6 million earners are under the age of 40. Most of these individuals are underinsured at a time when insurance risk needs are typically higher. Saving for retirement is challenging with many being heavily indebted with home loans and bonds, car payments, and funding children’s education. “So, protecting future income through insurance is a major risk factor,” Friedlander adds.

Retirement planning then becomes a risk factor by default too. Like insurance risk needs, saving for retirement must start at earlier stages of a working career and this isn’t happening.

How life insurance benefits can help to supplement your retirement plan

“Saving can be tricky in today’s economic climate, even if you’re a diligent saver,” says Friedlander. “People will need to find new and innovative ways to supplement retirement savings. We’re all up against numerous short term cashflow challenges juxtaposed against the backdrop of increased longevity and the associated conundrum of being able to sufficiently fund retirement savings. One option is life insurance, which can be a significant help with supplementation opportunities,” he adds.

Designed to meet post-retirement needs, Discovery Life’s Buy-up Cash Conversion benefit allows clients to supplement their retirement funding using payments they receive from their life policy in retirement. “Clients are encouraged to engage with the Vitality programme, which allows them to monetise their behaviour simply by living healthily and managing their finances well. Four equal payments based on the size of their life insurance sum assured are then made at age 65, 69, 73 and 77 – a time when additional funds would be most welcome to boost retirement savings,” Friedlander explains.

For a limited period, clients can get the 50% Buy-up Cash Conversion offer that gives clients a 100% premium discount on the benefit for the first three years. If clients want to take out the 100% or 200% Buy-up Cash Conversion options, they will still receive a discount equivalent to the 50% option premium for the first three years.

Such a benefit is already making a difference in Discovery Life clients’ lives. “We’ve paid out Cash Conversions amounting to over R1 billion in total to our clients already, the largest of which was R11 million. During 2021 alone, we paid out R392 million in Cash Conversions to our clients. We also expect to pay out a further R5.6 billion on the benefit during the next 5 years,” he continues.

To counteract potentially serious financial implications of living longer with insufficient retirement funds, a benefit like this, which converts healthy pre-retirement behaviour into significant additional financial benefits in retirement, is a very effective way for our clients to solve this longevity funding challenge and live longer, healthier lives with their children and grandchildren at the same time.

Please note that the Buy-up Cash Conversion benefit is not an investment product, but a risk benefit. Therefore, this benefit does not have any lapse or surrender value before the payouts become due. Payments commence at age 65.

Article credit If 65 is the new 51, how are you tracking for a longer retirement? | News24

Two old people in retirement