What to consider when investing for retirement, plus 4 tips to get you back on track after a set back

Since raising children and taking care of other family members is a load often shouldered by women, saving for retirement or investing might seem like a luxury that they simply cannot afford.

With increasing financial strain on families, many people have been forced to cancel financial investments or have done away with having savings altogether. Even before the Covid-19 pandemic hit, South Africans had alarmingly low awareness about funding a decent retirement and managing it competitively – and women have historically faced the brunt of gender inequality having a direct impact on their earnings and, in turn, their retirement.

According to a finding by investment company 10X Investments’ South African Retirement Reality Report 2021, 54 percent of women say they don’t have a retirement savings plan, compared with 46 percent of men.

While reasons may vary, some include that of a single mother, Bongiwe Gumede (49) from Benoni. She started a bakery two years ago, after she was retrenched from the hospitality company she worked for when the hard lockdown came into force in 2020. Gumede, who had worked at the company for more than 10 years, decided to cash out her retirement annuity and used it to fund her business.

“Being retrenched is not only financially strenuous but also psychologically taxing. When that retrenchment package reflects on your account, you have to make the most of it, because you don’t know where your next income will come from. As a single mother of two children in tertiary, I knew I had to make a plan for when the children would come back home full-time. I had to bring in an income for my extended family, too. That’s when I started baking at home, and I advertised my services on Facebook and WhatsApp groups to acquire customers.

“The demand grew to the point when I rented a house to start a bakery. This bakery is currently all I have to support my family, and it hasn’t been easy running it, especially with loadshedding, which has had a negative effect on my business. I really don’t have the luxury of saving for the future, because of the current financial demands I have to meet.”

Why you still need a retirement savings plan

While many women like Gumede are struggling to keep their heads above water financially, saving for your golden years will lead you to financial independence – a gift your future self will thank you for.

Even though women are economically vulnerable because most of them earn less than men, statistically they [women] also live longer than men, which necessitates the need to save for the future.

Sindi Mondi, a financial adviser at Liberty, says according to Statista - a company specialising in market and consumer data - in 2019, only 26,8 percent of women in South Africa were legally married. The rest were either single, divorced, cohabiting or widowed.

“The married population often relies on financial planning by their spouses. That presents a major financial setback,” she says.

The life expectancy at birth for males declined from 62,4 percent in 2020 to 59,3 percent in 2021 (a 3,1-year drop) and from 68,4 percent in 2020 to 64,6 percent for females (a 3,8-year drop).

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“That means you leave the planning of an entire five years worth of income to someone who will pre-decease you as a woman. At times, it is only at death that the other spouse learns that there was no plan to start with. So, whether married or not, have an individual plan and be actively involved in it,” she advises.

Bridgette Walsh-Kruger, CEO of FNB Private Clients, mentions that there is still a large percentage of South African women who rely on men to make decisions regarding their finances.

“Financial knowledge is something that has been neglected in the past. It’s a daunting topic but giving the excuse that “someone else will worry about that for me” is just no longer good enough, especially with education at your fingertips,” she says.

A risk worth taking?

Asavela Gwele, who is an investment consultant at 10X Investments, says that women are very seldom known to take risks with financial investments, unlike their male counterparts.

“Forgive the generalisation but women are known to be more risk-averse than men, especially when it comes to their finances.”

Gwele points to another finding from the South African Retirement Reality Report 2021, which is that only 14 percent of women invested their money for growth, compared with 24 percent of men.

Bongani Mageba, the managing executive of non-banking financial services at Absa Retail and Business Bank, says this risk-averse nature of women is because they often hold a lower economic status than men. In those circumstances, the goal becomes preservation, and investment is regarded as a luxury.

“However, seeking advice from trusted educational resources and accredited advisers is key in empowering women along the journey to financial wellness. Many of these resources can also be accessed online for free,” he says.

Mageba advises that for women who are already on the path to building a retirement portfolio, it is wise to evaluate whether the amount they are saving is sufficient for the lifestyle they wish to maintain upon retirement, and to get assistance from financial advisers.

Walsh-Kruger says that the concept of beating inflation (cost of living) is important when planning for the future.

“Should your savings grow at a rate that is lower than the increase in the cost of living, your nest-egg will depreciate in value. Therefore, it is important to have a balance of retirement, savings, and investment vehicles to diversify risk over the long term, as this will assist you in reaching the capital base needed in retirement.”

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This is a point that Gwele emphasises. “Investing in equities has been shown to be the best way to grow your wealth. Leaving your money in a savings account will erode its real value because the interest earned is often lower than the current inflation rate,” she says.

“A high equity portfolio has proven to deliver the best returns over the long term. However, it is also the most volatile over the short term. You’ll need to keep your eyes fixed on your long-term horizon and ignore the ups and downs in the short term.”

Don’t cash it out yet

While women tend to cash out their retirement savings to take care of current emergencies and financial needs, it does affect their future financial security. Mondi says this trend is too common because of the nurturing nature of women. Gwele agrees.

“It’s no secret that women often devote themselves to caring for their partners, children, and often, their parents, too. Women are also more likely to have their career interrupted when starting a family. This often means the opportunity to cash out their retirement savings, too, which is one of the classic retirement savings mistakes. Cashing out savings means you are resetting your savings plan to zero, and also losing out on the potential return on those savings.”

Mondi says it’s important to note that when people withdraw before retirement age, it has an impact on that first R500 000 taxed at zero benefit.

“Once that first R500 000 is used up in a cash-out, it means that come retirement, you’ll be paying tax on the first Rand you access as a cash lump sum. Rather separate your retirement plan from your other needs, and stick to them.”