
South Africa’s Retirement Advantage

Glen Baker
We understand that financial planning is more than just numbers; it’s about understanding your goals and developing a strategy to achieve them. In contrast, many financial advisory companies prioritise asset and fund management products, with advice relegated to a secondary role. While we do offer investment management as part of our comprehensive service package, it’s never the starting point. Just like tax management and estate planning, investment strategies are tools used to achieve your overall financial well-being.
Given that we are active in investment markets, I always seek information that separates the number crunching from the philosophy of investing and the core issues that drive it. This commitment to client-centred advice is why I was so interested in Larry Fink’s (CEO of Blackrock, the world’s largest asset manager with $10.5 trillion in assets) recent newsletter.
The Power of Long-Term Investing
Fink’s father, an avid investor, instilled in him the importance of long-term investing. He encouraged him to buy his first stock (the DuPont chemical company) as a teenager. His father invested because he knew that whatever money he put in the bond or stock markets would likely grow faster than in the bank. And he was right. A simple calculation also illustrates this: a $1,000 investment in the S&P 500 in 1960 would have grown to nearly $20,000 by 1990, a return of 10.5% per annum, compared to minimal growth in a bank account.
Beyond Investment Wisdom
Fink’s message went beyond his father’s experience and wisdom (though that was a powerful anecdote!). He highlighted a key concern for US retirees: spending their savings comfortably without the paralysing fear of depletion. Fear, he argued, significantly impacts investment decisions. People who choose low-growth options like bank accounts (or under their mattress) are often driven by the fear of losing money rather than the potential for long-term growth in the stock market.
South Africa’s Advantage
Fink’s message on spending down retirement savings resonated with me because South Africa has a head start in this area. In the early 1990s, we transitioned from employer-funded pensions to individual retirement plans, similar to the 401(k) system in the US. However, unlike the US, South Africa offers more flexibility in managing these funds throughout retirement.
The Financial Times recently highlighted a challenge in the US: many people, especially Gen Xers, lack sufficient savings in their individual 401(k) plans. This exposes a limitation of the US system, where retirees often rely on expensive annuities to access their savings.
South Africa’s Strengths
In South Africa, cost-effective and well-advised “wrapping” of retirement savings into products that allow retirees to access and spend their money comfortably has been available for years. Financial advisors like Chartered Wealth Solutions and fund managers like WealthStrat prioritise client well-being throughout the retirement journey.
We should celebrate that South Africa doesn’t necessarily need a complete overhaul of retirement products and services. However, there’s always room for improvement. Our challenge is to include more citizens in the savings net through economic growth, but that’s a topic for another day!
Please get in touch with the WealthStrat team if you have any questions.