For the Financial Informer First Quarter 2021, we take a look at the scary reality of the future of retirement in South Africa and how you can prepare, as well as a look back at the ten most important financial innovations of the past decade.
Retirement 101
South Africa is sitting on a retirement timebomb, with the data aligning very closely to a widely quoted National Treasury statement that only 6% of the country’s population is on track to retire comfortably.
Some of the key reasons why so many South Africans will face a bleak reality after their working lives come to an end are affordability and lack of planning. A frightening number of people have not formally planned how they will fund their retirement. Of those who have, few are monitoring their progress. Most don’t know whether or not they are on track to meet their goal to be able to support themselves in retirement, never mind in any comfort. The upshot is that many South Africans pay little attention to their life’s biggest investment.
Something’s gotta give
There are two reasons people fail to properly prepare for their retirement: complexity and human nature. First of all, the perceived complexity of retirement planning is completely unwarranted. For years, planning for retirement has been cloaked in layer upon layer of technicality and unnecessary terminology. The truth is a whole lot simpler. Forget about the terms, the tax-deductibility, and all the technicality. In its simplest form retirement planning is nothing more than saving enough capital to fund an income one day when you no longer earn one. It is as simple as that. Obviously, there are products and tax relief that assist you with your planning but they are nothing more than vehicles to get you closer to your goal of having enough. Secondly, human nature is probably the greatest barrier to people successfully planning for the day they no longer earn an income.
Opportunity costs
It is a well-known fact that you should start saving for retirement as soon as you start working. However, tell the average 20something that they need to follow this tried and tested advice and you are bound to be met with a blank stare or an incredulous laugh. Of course, it is entirely understandable that a young person should feel this way. The thought of preparing for the end at the beginning seems preposterous. Besides, young people have better things to spend their money on and the thought of retirement is the last thing on their minds. But it should be and the truth is that there is no mystery to retirement planning, just the barrier of people’s own human nature. The secret to retirement planning is simple: Save 15% of your gross earnings for your whole working life, invest those savings in a well-diversified high equity fund.
From caves to computers
As we enter a new decade (yes, according to the American Astronomical Socie-ty the decade started on 1 January 2021), we wonder what innovations the next ten years will bring. This article looks back in time at 10 of the most important financial innovations in history.
In the beginning – commerce
Our ancestors bartered basic commodities from prehistoric times, but commerce – the exchange of goods and services over long distances – is a more recent development. Historians date the existence of long-distance commerce to as far back as 150,000 years ago. There is evidence that some of the earliest traded commodities were flint and obsidian, substances used to make primitive tools.
Greasing the wheels – money
While the original form of trade would have been barter – the exchange of goods – the invention of money greatly simplified and promoted trade. The first objects used as money were commonly available objects which, besides having an intrinsic value, were also acceptable to people as a medium of exchange for other goods and services. This type of money is called “commodity money” and examples from history are numerous, including cattle, pigs, salt, rice, and seeds. In medieval Iraq, bread was used as an early form of money while the Aztecs used cocoa beans as money.
