Stop debating and start planning for your retirement
14 September 2016
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Chris Gibbons: On mobile, on digital, on demand, this is Old Mutual Live Money Coach. Hello and welcome, my name is Chris Gibbons. None of us are getting any younger, sadly. But with a bit of luck and some careful attention to our health, we all aim to live long and prosperous lives. Once we stop working, we would also want to enjoy a long and comfortable retirement.
But the reality is that most South Africans don’t pay enough attention to retirement planning. Many of us wind up living in very difficult circumstances. Against that background, I thought it would be useful if Old Mutual Money Coach spoke to an expert. We’re joined now from Cape Town by Old Mutual Life Assurances Legal Advisor, Tristan Naidoo. Tristan welcome, good to chat to you. Retirement, when should I start planning, how do I plan, do I need help?
Getting the retirement ball rolling
Tristan Naidoo: It’s an interesting question, but there can be a standard response to when should one start planning and it’s as early as possible. I think the effect of compound interest is one of those elements that one kind of doesn’t take full advantage of, especially as a younger person.
Probably because the younger you are, you don’t really think about a topic such as retirement. It’s something that you know someone only at the age of 50 should start thinking about. But that’s so far from the truth. The earlier you start saving and the earlier you start getting into that habit and thinking about retirement, it’s at that stage.
Usual data tells us that they do some sort of analysis around the age of 25 and that’s sort of the assumed age, average age when a South African would enter the job market. They’d say a good retirement plan would start, where you’d start saving at the age of 25.
But the critical component in all forms of financial planning is the circumstances play a critical role. One may not be able to adequately save towards retirement from that age. Mainly to then adjust to that plan. Inasmuch as I say, as early as possible, the circumstances to that are quite key.
For how should one plan, I think self-education is something that is critical. Self-education is going to help you contextualise, for you to understand the topic before enlisting anybody else to come on board to assist you. That just helps you to contextualise the issues that they would speak of.
When they speak about the effect of compound interest, you have a semblance of understanding of what they’re talking about. When they talk about retirement goals and what is your provision and general types of vehicles. It’s something that you can start to relate to and understand and as a result help you with that habit.
How to start with self-education
To self-educate I would say is the recommended first step and the next step after that is to enlist the services of a suitably accredited financial planner. The reason for me slowing down and saying the word ‘suitably accredited’. Is you’d get financial planners who could advise on specific topics.
It’s like any profession in the field, you get a doctor, he can be a GP or he can be a cardiac specialist. You can get a lawyer who can advise on pension funds or they’re litigation in the criminal field. It’s like any type of professional.
When you talk about ‘suitably accredited’ it is the financial advisor who has the necessary accreditation and experience to guide you through the process. With specific regards to retirement planning. Again, if we had to jump across to one of the other topics and talk about risk planning or investment planning as a broader concept outside of retirement. Then again, you’d look for a professional who is accredited to speak on those specific topics.
From an industry point of view, it’s something that is mandatory. You cannot advise on a topic that you are not accredited and have the necessary credits for. That’s just the industries way of safeguarding the public where that is concerned. When you engage with a planner, it’s essential that you ask those questions. Are you accredited to advise me on this particular topic.
Your pension needs are individualistic
CG: How do I know which pension plan is going to be the best for me?
TN: Again, when you talk about a pension plan, I would say the pension plan that is going to be best. Is the pension plan that’s going to enable you to reach your goal at retirement, or get you as close to those goals as possible. But also one that is going to be suitable for your circumstances.
Unfortunately, we live in an environment where communication and information is so vast. It’s so easily accessible and as much as that is a good thing, unfortunately there’s a lot of information that one may assume that because that person has done it. I can see the results, that is the plan that is going to work for me.
The plan has to vary according to your circumstances. I may not have children or I may have five children. My parents may not be dependent on me or I may not have any dependents. So all of those factors you need to take into account. Do you have a pension plan at your employer? Are you self-employed?
CG: Let me ask you a question Tristan, do I need any of this stuff that you and I are talking about if I already have a pension fund to which I contribute, at the company I work for?
TN: I say yes and I say that both with hesitation and I say it positively. I say yes with hesitation because it’s extremely dangerous to try a blanket approach and assume that that blanket approach is suitable and necessary for everybody’s needs.
I say it positively because the data that we’ve received and just in terms of the stats and living conditions at the moment and the financial environment that we’re in, the stats tell us that in most cases, it is not sufficient. Yes, there are instances where persons can just rely on their pension fund. So when I say their ‘pension fund’ I mean the pension fund linked to the employer, where they are saving.
You can just commit to that and you can retire without putting yourself in financial distress. Just think about it. At retirement, it’s supposed to be your twilight years, you need to enjoy life. You don’t necessarily want to just ensure that you’re not living in financial distress. You want to also make provision to enjoy those years and that’s what you’re also saving towards.
How do you want to live in retirement?
In order to cater for all of your special requirements. Do you want to travel, do you want to visit your grandkids, do you want to see different things, experience different things that your job kept you from enjoying. All of those things are important, so I would say, the gut feel is you need to determine what all of your goals are.
If your goal is your retirement; I really don’t want to enjoy anything else, I just want to make sure that I’m comfortable. Then have a look at your savings provision and determine, is that going to enable me to retire without any financial distress or is there something I want to contribute or enjoy further.
Then this is where all of the other niche things come in, retirement annuities being one. There’s been debate about whether the tax-free savings is an adequate provision, but there’s various different ways to save. Another example, it’s quite a strategy actually, some people were at a younger age. When I say a younger age, I say between 35 to the 50 gap.
They’d start investing in retirement properties, in retirement villages, so that when they reach that stage of retirement, they’ve essentially saved towards their retirement provision. Being the property that they would retire in, that is suitable for them at the age of retirement.
Because a lot of your income that you would then generate at retirement, doesn’t need to cater for that type of expense. That’s just another way that’s outside of your standard retirement savings vehicle, it’s another way of saving. The only downside to that is there’s currently a lot of incentives in saving towards your more standard retirement saving type vehicle.
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. I’m talking to Old Mutual Live Assurances Legal Advisor Tristan Naidoo. Tristan, this sounds pretty complex and I begin to understand why I would need an accredited advisor. But personality also plays a role, how do I pick a good financial advisor?
How to find the right advisor
TN: This can be so simple and it can be as complex as planning for retirement. It’s sort of a gut feel when you meet anybody, it’s a relationship you have. It also depends on the type of person that you would want as your financial advisor and what you’re looking to get out of that person.
For some people they would want a mentor, they want somebody they can rely on. Someone to guide you through the process, it’s taking more of a nurturing role through that process. Money is a very difficult subject to talk about and not everybody is comfortable talking about it.
There’s certain personalities who can do that in a very good and professional way without you even realising you’re talking about the topic of money. Then you get some other people who require just a pure data analyst. Tell me where I am, tell me what I need to save and tell me for how long I need to save for. That is what they require. They don’t want a relationship, they don’t want that guidance and nurturing and that is also fine.
It all depends on who you’re comfortable with and who you’re looking for in your financial advisor. My financial advisor who I had to recently replace because he passed away. But probably one of my closest friends, he was like a granddad to my wife. He was just a friend and a confidante and before anything else, he was, I think, a financial advisor. That was what I required from my financial advisor. We had someone else who didn’t necessarily want that, they’d just want that pure data analyst.
CG: This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons. With me on the line from Cape Town has been Old Mutual Life Assurances Legal Advisor, Tristan Naidoo. Remember, please feel free to get in touch any time if you have any questions for me or topics you’d like covered on Old Mutual Live Money Coach. Feel free to send them direct to me at firstname.lastname@example.org. I would be delighted to hear from you. Until the next time, thank you for listening. Old Mutual Live, on mobile, on digital, on demand.