RSS Feeds RSS | Views on ITInews | contact | terms of use | privacy 

Editorial Categories:


Forthcoming Events:

No Upcoming Events

Available Recruitment:

No Vacancies Listed...

Save by getting insurance quotes

Your Editor, Brent WilsonInforming Consumers and Financial Advisors since 1988 | Click Here to Advertise
Seriously growing your money
Press Offices > Asset Managers

Foord Asset Management
Press Office Feature : Why we don’t save enough

Company: Foord Asset Management
Author:Catherine Pate
Email:[email protected]
Posted:21 Apr 2015

 Email this article Comment on this Article  Print this article

Consider making saving for retirement a default option rather than an active choice.

Among the biggest concerns of most investors is the adequacy of savings earmarked to sustain a financially successful retirement.

Amplifying this worry are increases in the cost of living and increased longevity.

“’Enough’ and ‘sufficiency’ are words that require particular definitions in the context of retirement,” says Heather McCulloch, Head of Retail Investments, Western Cape for Foord Asset Management. 

“For retirement planning purposes, one might hear reference to the ‘replacement ratio’, which is the proportion of one’s income immediately before retirement that is required to be sustained after retirement."

"Globally, it is generally accepted that replacement ratios of between 70% and 100% are sufficient, however, in South Africa where retirees cannot depend on state aid, research has been biased towards the need for even higher replacement ratios.”

According to McCulloch, when viewed through this prism, too many people lament having saved insufficiently for retirement.

This outcome is regrettable but is rooted in our human behavioural characteristics.

The first of these characteristics is myopia: We have a bias towards the present and place greater value on lifestyle experiences now than rewards in the future. 

In addition to this, a consumer mind set abounds - to highlight this, a recent study in the USA showed that 75% of surveyed households could not park their cars in their garages for want of the space taken up by “stuff” that had been accumulated over the years.

The second behavioural trait, according to McCulloch, that militates against successful saving is loss aversion.

Loss aversion is often explained as the pain of losing wealth (even if transient) or the reluctance to experience such loss.

But it also manifests in the simple reluctance of people to make do with less.

“The third element influencing a poor savings rate is lack of knowledge,” says McCulloch. 

Here, lay people are not entirely engineers of their own misfortune: The financial services industry thrives on excessive choice and confusing jargon.

That said, investors should ask simple questions to which they deserve uncomplicated answers.

“The nub of any retirement savings plan is formed on these questions: How long do I have to save? How much do I want and need to have as a retirement income?"

"How long do I expect to live in retirement? What returns can and should I earn on my investments before retirement and after retirement?”

So how can we save ourselves from ourselves and ensure that our savings for retirement are at least adequate?

McCulloch says that perhaps the first steps are to use our own behavioural biases to our advantage. 

“Firstly, consider making saving for retirement a default option rather than an active choice. It is in our natures to procrastinate on decisions that require active intervention."

"In contrast, we tend to have little regard for actions that occur without our decisions."

"In investing parlance, the most obvious of these types of actions is the automatic, regular contribution to retirement savings, for example, retirement fund contributions or investment into unit trusts by monthly debit order.”

“Secondly, we can prevent our natural inclination towards the tendency to prefer smaller rewards sooner than larger rewards later. This can be done while being mindful of our equally natural aversion to loss."

"Behavioural finance researchers Shlomo Benartzi and Richard Thaler have coined the phrase ‘Save More Tomorrow’."

"Using this mind set, investors are encouraged to invest more of their next increase or bonus tomorrow, rather than cutting spending today."

"If the necessary commitment can be achieved, then the rewards will follow,” concludes McCulloch.

There are no comments at this stage. Be the first to comment!
Please Login To Comment On an Article - Click here To Login

ITInews invites comments at the foot of each of its articles in which readers can respond freely - anonymously if they wish - to various topical issues and industry debates. However, comments submitted by readers that are defamatory or deemed, by the editors, to be racist or obscene will be deleted from the database. Furthermore, ITInews's editor would like to caution potential posters on its websites that while it welcomes robust debate, it will not hesitate to make the IP addresses of the authors of such defamatory statements available to the authorities, in the event of a court order compelling them to do so.

Get car, home, life and business insurance quotes in 3 easy steps

Foord Asset Management

Join us today

More from Foord Asset Management
The role of cash in your investment portfolio
Market recoveries often deliver the best investment returns
Stewardship – Substance Over Form
Professional fund managers should possess an ethic that informs every investment decision
Investment management and performance fees
What constitutes “good value for money”?
Don't chop and change your investments
Make a well-considered decision at the inception of the investment and persist with that decision
Crystal ball investing – Speculation leads to investment loss
A successful long-term investment philosophy eschews trends
Are fees incentive enough?
The value and importance of co-investment
Why we blow our Christmas bonuses (and why we need to save ourselves from ourselves)
Investment is all about building a platform for later consumption
What determines the short-term direction of equity markets?
Until very recently, global equity markets have been on a steady upward trajectory
Improving global economies no panacea for South Africa
Foreign equities remain our preferred asset class
A three decade track record that speaks for itself
Outstanding long-term investment performance

Archived Articles featuring this company ...

Insurance Quotes

Car Insurance Quotes
Household Insurance Quotes
Business Insurance Quotes
Funeral Insurance Quotes
Life Insurance Quotes

Read the InsuranceQuotes Blog
ITM Website Design Cape Town
Copyright © 2005 - 2015 ITInews Online Publications (Pty) Ltd. All rights reserved Insurance Times & Investments Online and ITInews. ..::ISSN 1995-1256::.. No part of the materials including graphics or logos, available in this Web site may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine-readable form, in whole or in part, without specific permission from ITInews Online Publications (Pty) Ltd. Distribution for commercial purposes is prohibited.