In the world of retirement savings, there’s always a shiny new thread tempting investors to weave a different pattern. The idea that you can jump in and out of markets at just the right moment to improve returns is alluring. Who wouldn’t want to avoid the dips and ride the highs? But here’s the stitch in time: timing the market is notoriously difficult and can unravel the very fabric of your long-term financial planning.
The temptation of timing
When markets swing wildly, headlines scream opportunity or disaster. Investors feel pressure to “do something”. Even seasoned professionals struggle to predict short-term movements. Missing just a handful of the best-performing days can slash returns dramatically. Research consistently shows that staying invested beats hopping in and out.
Think of your retirement plan as a carefully knitted sweater. Each contribution is a stitch. Pull too hard on one thread, by chasing trends or panicking during downturns, and the whole garment starts to unravel. The boring advice of “stick to your knitting” isn’t glamorous, but it works. Consistency, not cleverness, is the cornerstone of retirement success.
Why does “boring” win? Over decades, compounding turns steady contributions into a robust retirement pot. Investors who champion disciplined strategies, such as regular contributions, diversified portfolios, and long-term horizons protect themselves from the costly consequences of impulsive decisions, especially when these decisions are being made on behalf of others.
A common heuristic is that if you miss the 10 best days in the market over 20 years, your returns could be halved. Those days often occur during periods of volatility when fear drives investors out. The irony? The moments that feel most dangerous are often when staying invested matters most, such as during the early days of the COVID-19 pandemic in March 2020.
The hidden erosion of contributions
Even if members stick to their knitting, another thread can fray quietly: contribution erosion. Many members believe they’re contributing a fixed amount of their salary to retirement savings. Risk premiums and other costs may nibble away at that figure.
While we don’t dissuade from the importance of group risk benefits, which are critically important, it is important to not assume the costs of these is negligible in adjudging the effect of them on your retirement contributions.
As an example, if 15% of salary is being deducted for risk and retirement, and if risk premiums and other costs consume 3% of contributions, the actual amount invested drops to 12%.
This matters because adequacy hinges on sustained contributions. Funds must ensure transparency: members should know their net savings, not just the headline percentage. In volatile markets, every basis point counts. If risk benefits are not meeting needs, or other costs are too high, they may inadvertently compromise retirement outcomes.
Saving enough: The silent crisis
South Africa faces a retirement adequacy challenge. Industry benchmarks suggest contributing at least 15% of salary over 40 years to achieve a comfortable retirement. Yet, erosion from costs and benefits means many members fall short. Add market timing missteps, and the gap widens.
The real crisis is not whether investors pick the right moment to buy or sell. It is whether they are saving enough, consistently, over time. Are investors knitting a strong, resilient fabric or a patchwork that won’t withstand the wear and tear of retirement?
Practical steps for trustees and members
How do we keep the garment intact?
1. Review how much of the stated contribution reaches retirement savings. Communicate this clearly to members.
2. Generous risk cover is commendable, but not if it unravels retirement adequacy. Find the sweet spot between protection and preservation.
3. Timing markets is a distraction. Increasing contributions, reducing leakage, and staying invested are far more impactful.
4. Encourage members to ignore the noise. A well-knit strategy beats any market-timing gimmick.
Conclusion: Knit your way to financial security
Retirement planning is about knitting steadily, stitch by stitch, until you have a garment that lasts. Trustees and decision-makers hold the needles: design benefit structures that prioritise adequacy, educate members on the perils of timing, and reinforce the value of consistent strategies.
When it comes to retirement, the best advice is simple: stick to your knitting. Ignore the fraying threads of market timing, tighten the weave of contributions, and create a fabric strong enough to carry members through their golden years.
Important statistics:
Missing the 20 best days in the market over 20 years can cut returns by two-thirds.
Aim for 15% of salary over 40 years for a comfortable retirement.
Risk benefits and other costs can reduce actual savings by 2 to 4%, significantly affecting outcomes.
Every extra 1% saved can boost your retirement savings by 10–15% over time.