So said Steven Nathan, CEO of financial services provider 10X. There are two simple reasons for this: people are not saving enough for long enough, and the return on savings is poor.
He was talking at a media round table in Cape Town ahead of National Savings Month, which starts on Tuesday.
Set up for failure
The retirement industry is massive, with private sector retirement assets exceeding R1.5trn and long-term savings at R310bn per year.
Nathan pointed out that poor industry practices can cause even a diligent saver to fail. The array of products on offer is complicated and bewildering to the ordinary investor, while advice is often conflicted and expensive.
"If you give people lots of choice, they become overwhelmed and as a result, tend to become more conservative."
Ninety percent of South Africans fail to be financially secure at retirement, at a less than 30% average replacement ratio versus the minimum 60% required.
Consumers are often disengaged, with apathy (they may feel retirement is too far away) playing a part. Ignorance is also a factor, while many consumers are distrustful, often after seeing other people’s poor outcomes.
Poor industry practices play their part, and the sector's own efforts to mend matters have had minimal, if any, impact. Another reason is that some people simply wake up when it's too late.
High fees and active asset management (including multi-managers) which delivers poor value hardly improve the picture. Underperforming managers are a fact of life - "it's not a debate", said Nathan.
Opaqueness also makes for a murky idea of where investors stand with their retirement savings. "Most people have no idea where their money is invested - it's very hard to know, as benefit statements are so opaque."
Little wonder then that National Treasury favours a simpler retirement system, with strong defaults to ensure savers get better value.
Fact is that most people have investments that underperform the returns they could have achieved. Investors make bad choices based on emotions, usually because they are either greedy or fearful.
Timing the market is not a good idea; Nathan pointed out that by switching, you could earn up to 4% less on your investment. In fact, you could lose up to 2% per year on your hard-earned pennies because of bad choices.
What to do about it
So what's the solution? "All this emotional stuff is one of the big issues. You need common sense and logic (for successful retirement planning)", said Nathan.
"People fail because they don't have a plan, or they have the wrong plan." Fees and investment volatility are important considerations. Emotionally, people tend to need a catalyst, which comes down to an adviser. Your adviser should give you a plan, one which embodies common sense, long-term investing principles.
The ideal is to save 15% of each and every salary cheque you earn, from your very first payslip, for 40 years. The reality falls far short of this, with three out of four people cashing in their pension savings when they change jobs along the way.
"The solution is simpler than many people realise," said Nathan.
He gave the benchmark of 5% as a reasonable long-term return (after inflation) for a high equity portfolio, before fees. Returns of up to 15% as promised by some advisers is "pure garbage", he said. "They forgot to tell you that inflation is 9%."
A sensible road map will engage, empower and educate investors, to give them the nest egg they need for their retirement.
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