Now millennials can retire well

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30 May 2016: Discovery Invest

The millennial generation demands more from the institutions that serve it. This generation is more civically-minded and has also experienced a loss of trust in institutions following the financial crisis. Organisations that seek the patronage of millennials must demonstrate that they are a force for social good.

It’s easy to understand why retirement isn’t a major concern for millennials. For them, it is challenging to think about the end of their careers, decades ahead. However, it is most relevant that they do as people get older, and careers come to an end, while needs remain. This is where savings become very critical, and to be without money invested for later in life, many may find themselves without sufficient means in their old age.

This is where financial advice and product design is so important. The reality is that the earlier you start saving, the harder your money works for you through compound interest – that interest earns more interest over a longer period of time. It is for this reason that experts advise saving right from your first paycheque.

Today’s younger generation, from newborns to youth, are reported by one study in Time magazine to live past the centennial age. This increase in our longevity is largely credited to new breakthroughs in science, a surge in smarter medical technologies, scientifically-backed wellness programmes like Discovery’s Vitality, and smart drugs that know how to fight disease in ways we’ve never seen before and toughen our bodies. But do we think of saving enough for our retirement, especially in case we live longer? Not many do.

“Unfortunately retirement is often seen as something to consider only later in life, ‘when you’re old’. The result is that South African millennials put very little aside for their future self,” says Craig Sher of Discovery Invest.

Discovery Invest developed an innovative solution that incentivises clients pre- and post-retirement to save early and manage their retirement income appropriately. Before retirement, clients can plan to retire with increased savings through the Discovery Retirement Upfront Investment Integrator. In this, they are provided with a boost to their retirement savings upfront by up to 15 percent based on their retirement term. The longer the term to retirement, the higher the boost they receive. This encourages clients to start saving earlier. This approach is also good for Discovery Invest, as longer investment terms mean longer periods over which to earn fee income, explains Sher.

Post-retirement, the Retirement Income Investment encourages clients to be healthier and draw down conservatively from their retirement savings to make them last longer. Again, this positive behaviour makes clients live longer, it makes their retirement funds more sustainable and Discovery also makes more money through longer periods over which to earn fees. “We then use this additional fee revenue to give back to clients through boosts to their income up front,” says Sher. This integrator provides clients with boosts to their annuity income of up to 50 percent for 10 years without charging them anything extra.

Because these investment solutions are designed to encourage clients to do what is best for themselves and thereby receive better value, it ensures that it is relevant to clients and the modern world they live in and are likely to retire in.