By Sharon Moller, Financial Planning Coach at Old Mutual Wealth
With just six percent of South Africans able to afford a financially independent retirement, the prospect of leaving the workforce at age 65 to live off one’s savings is broadly out of reach. But for young people, it’s not merely a question of affordability. The traditional concept of retirement simply isn’t relevant to the way this generation lives and works.
If we are to re-imagine retirement in a meaningful way, it’s important to look squarely at this generational disconnect. In 2022, employment looks very different to employment for past generations. Gone are the days of stepping straight from school or tertiary education into a long-term job with built-in retirement benefits.
Many young graduates struggle to find formal employment and must work outside of corporate structures. Since saving for retirement does not happen in the default way it did for previous generations, this generation must now embark on self-directed savings plans. But more pressing financial goals tend to take preference – from saving for a deposit on a first home, to educating small children or investing in a small business.
What’s more, the tech-based industries in which many young people work function quite differently to older, more traditional industries. There’s much less focus on formal qualifications, such as degrees, and higher value is placed on practical skills gained through short courses and on-the-job experience.
For this reason, it’s common for young people to work on a contract-to-contract basis, building a portfolio of experience as they go. Short-term project work and structured retirement savings are not an easy match.
After all, what does retirement planning look like if you’re never been permanently employed?
The new generation needs a new narrative.
While the traditional concept of retirement no longer resonates, planning for future life transitions remains universally crucial for robust financial health. For young professionals, the conversation needs to shift from ‘retirement’ to making the money they earn work for them over the long term.
In this new narrative, retirement is not a goal in and of itself. Instead, it’s just another transition that comes about when your 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.
But because no one can know how long they’ll be able to earn – nor how long their savings will have to sustain them – planning for this transition is a form of self-insurance. And the sooner you start, the better your cover.
The importance of lifestyle financial planning
In a country like South Africa, where youth unemployment is close to 65%, this kind of financial foresight is frequently out of reach.
We need to start by helping young people uncover what they are good at and how they can turn these talents into paid work without relying on an employer to make a living. This might mean upskilling through short-term, focused education first, to get to the point of earning. Only then, when they can envision a future for themselves, does the conversation about saving really become possible.
Lifestyle financial planning goes beyond number-crunching and box-ticking to help young people grapple with fundamental questions: How do I make a meaningful economic contribution? What do I want to experience? What does financial freedom look like to me? 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 we think and talk about retirement needs to change, but most of the financial products and structures remain the same. There are clear tax benefits in vehicles 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. This makes more sense for young people who are working from contract to contract with non-earning months in between.
Understanding the stakes
As South Africans, we need to rethink about retirement planning as a matter of urgency. The consequences of not saving enough for your future while you are working are potentially devastating – both personally and socially. 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. Failure to do so will result in an entire generation becoming dependent on the government or their children as they age.
We simply cannot rely on a limited number of corporate jobs to sustain us all financially. We need to empower all South Africans – especially the youth – to enter the market as effective entrepreneurs. Because if we can help young people do what they’re good at and get paid for it, there’s no need for them to stop at a predetermined age for the sake of convention. They can continue to earn doing purposeful work and gaining financial freedom – slowing down over time rather than ever fully retiring.
This is the new paradigm young people are inviting us to contemplate.
