It is an unfortunate misconception that the best time to find a financial adviser is once you have accumulated your wealth and are contemplating retirement. In fact, nothing could be further from the truth.
Almost every significant life event has financial, tax or legal implications that a qualified adviser can navigate you through for best outcomes. Although the list is exhaustive, here are ten life events that your trusted adviser can guide you through:
Life event: getting your first job
Financial planning considerations: You don’t only need a financial planner once you have built your wealth. In fact, the best time to seek the advice of a financial planner is at the outset of your career. Find an independent, fee-based adviser who will partner with you on your wealth creation journey. Although you might not think you require the services of a financial planner, here are some things that a financial planner can assist you with at the outset:
- Once you are formally employed, you will need to move off your parents’ medical aid as you no longer qualify for dependant status. Talk to your financial planner about joining an appropriate medical aid and putting a gap cover policy in place to protect yourself against future hospital expenditure which is not covered by medical aids.
- While you are young and employed, your greatest asset is your ability to generate an income. This asset must be protected through an adequate income protection benefit. If not offered by your employer, your financial planner should be able to advise you on the most appropriate product taking into account the nature of your occupation and future earning potential.
- If your employer provides retirement fund benefits, take advice from your financial planner with regard to the best investment strategy. Most employer’s offer a default investment strategy which targets fairly conservative returns which may not be appropriate for your investment timeline. In the absence of a group retirement fund, speak to your adviser about maximising your tax-deductible premiums towards a retirement annuity.
- Depending on the nature of your vocation and income, your adviser will assist you in developing a strategy to build up an emergency fund using a range of discretionary investment vehicles.
Life event: getting married
Financial planning considerations: Before entering into a marriage contract, it is vital to understand how the various marital regimes will impact your estate. The decision to marry out of community of property with or without the accrual system must be made prior to the date of marriage. If not, you will automatically be married in community of property. Before getting married, meet with your adviser to discuss the most appropriate marital regime for your circumstances taking into account your current net worth, business interests, trusts and income. Once married, your adviser will assist you with:
- Adding your spouse as a dependant on your medical aid and gap cover policy, or vice versa. If your spouse has a subsidised medical aid through employment, it might make financial sense to move onto hers, and your adviser will guide you through this process.
- As a couple, you may want to consider taking out life cover to protect each other in the event of death. Your adviser will assist with this process and ensure that your beneficiary nominations on any existing policies are updated.
- Your adviser will assist you in updating your will to ensure that your estate is bequeathed according to your wishes.
- Lastly, your planner will assist you and your spouse in developing a joint financial plan to map a path forward together.
Life event: buying property
Financial planning considerations: Purchasing a property affects your cash flow and has a number of financial implications that you adviser can assist with, which include:
- Ensuring that the property is registered in the correct entity for future financial planning purposes. It is important to understand the estate planning and tax implications of registering a property solely, jointly, in a trust or in a business entity, bearing in mind that these decisions need to be made before the date of registration.
- Understanding the mechanics of your access bond and how this facility can be used to maximise savings. For instance, if you are a commission earner or earn an irregular income, you may wish to save surplus income in your access bond and then use the accumulated funds to maximise your RA contributions at the end of each tax year.
- You may need to increase your life cover to ensure that your estate is able to settle the home loan in the event of your death.
Life event: having children
Financial planning considerations: Before contemplating having children, our advice is to ensure that you and your spouse are on the best medical aid plan for your needs – bearing in mind that, once you fall pregnant, you may not be permitted to change plan options during that benefit year. In addition, if you fall pregnant while not on a medical aid, the scheme can exclude all costs pertaining to your pregnancy and birth as a condition of membership. Other financial planning considerations include:
- It is important to understand your maternity benefits and how they impact on your financial plan in advance. Together with your adviser, prepare a cashflow plan to ensure that you can survive financially during this period.
- Once your baby is born, he/she will need to be registered as a dependant on your medical aid and gap cover policy.
- You may wish to increase your life cover to ensure that your child will be financially provided for in the event of your death. In addition, you may wish to update the beneficiary nomination on your policies.
- You and your partner would need to update your respective wills, appoint guardians for your minor child and possibly set up a testamentary trust to protect any assets bequeathed to your child.
- Your planner will be able to guide you on how to invest for your child’s education.
Life event: falling ill
Financial planning considerations: Falling ill, suffering from any form of temporary or permanent disability, or being diagnosed with a chronic condition can impact your financial plan in the following ways:
- If your disability or severe illness gives rise to an insurance claim, bear in mind that your adviser should manage this process on your behalf. You may be able to claim from your income protection benefit or life insurance policy, so it is important to know what benefits you have in place.
- Being diagnosed with an illness may qualify you for your medical aid’s chronic condition benefit. Once again, your planner should be able to assist with this administration and give you advice on this.
- If your illness results in loss of income, reduced working hours or a financial set-back, your adviser will assist with revising your financial plan and budgeting for future healthcare costs. Depending on your age, this could include the costs of frail care or assisted living.
- Depending on the diagnosis and subsequent prognosis, you may want to consider having a living will drafted.
Life event: starting a business
Financial planning considerations: Before setting out on your new business venture, take advice from your financial planner about:
- The most appropriate entity to house your new business in, taking into account your marital regime, tax and estate planning.
- Putting a cashflow strategy in place to fund the set-up of the business and to cover overheads until the business generates sufficient profit.
- Devising a strategy for any money accumulated in your retirement fund, taking into account how this money will be taxed on withdrawal and its future growth potential if reinvested.
- Drafting a buy and sell agreement and putting business assurance in place in the event of a partnership. You may also want to consider key person assurance.
- Replacing any life or disability cover that you may have lost as a result of exiting your group life cover.
- Drawing the most appropriate level of income from the business to minimise tax but at the same time ensuring liquidity.
Life event: inheriting
Financial planning considerations: Making decisions regarding an inheritance pay out or windfall can be difficult. Your financial planner will be able to advise you:
- How best to utilise the capital whether it be to reduce your home loan, boost your retirement annuity, minimise tax, reduce debt or renovate your home in order to generate additional income.
- How your inheritance or windfall impacts on your retirement plan. Will you be able to retire earlier than anticipated? Can you cut back on your retirement funding premiums?
- How to revise your life goals and invest the capital so that it aligns with your future plans.
Life event: getting divorced
Financial planning considerations: Our years of experience show that seeking the advice of a financial planner before getting divorced delivers the most positive outcomes. Your adviser will play an integral role throughout this process. Here’s how he/she can help:
- Before filing for divorce, it is essential to know how you are married, what the implications are in respect of your estate, and what rights you have in respect of your investments.
- With regard to retirement funds, South African legislation allows for what is referred to as the ‘clean break principle’ which is the right of a spouse married in community of property to receive immediate payment from the other spouse’s retirement fund interest allocated to him/her, and your adviser will be able to guide you through this process.
- Your adviser will help you to understand the tax and CGT implications of any disinvestments or sale of assets that need to take place as a result of the divorce.
- Once you are divorced, it is essential to update your will to ensure that no unintended beneficiaries inherit from your estate. Failure to update your will within three months of the divorce order could result in your ex-spouse unintentionally inheriting from your estate.
- Depending on the terms of the divorce order, you may be required to move onto your own medical aid.
- Importantly, any maintenance obligations in terms of the divorce order will need to be protected and this is often done in the form of a policy on the life of the spouse responsible for maintenance.
- Once again, you will need to reconsider the nominated beneficiaries on any polices, investments or retirement funds.
Life event: retiring
Financial planning considerations: Retirement fund legislation is hugely complex and undoubtedly requires the expertise of a financial planner to assist with the following:
- You will need to decide when to retire from your pension fund, provident fund or retirement annuity, taking into account tax and estate planning factors.
- Navigating the life and living annuity arena can be a minefield and it is strongly advised that you take guidance from your adviser on the most appropriate vehicle to use.
- It is essential to ensure that your investments are appropriately allocated between compulsory and discretionary investments to minimise tax, maximise cashflow and reduce the risk of outliving your retirement capital.
- Drawing a post-retirement income from multiple sources can be tricky and setting the correct rate of draw down from your living annuity can be daunting. Determining whether to draw from your annuities, discretionary investments or to use other sources of income (such as rental income) – and at what point – can be complicated. Your adviser will model your post-retirement cashflow for you so that you can budget accordingly and draw down in the most tax-efficient manner.
Life event: losing a spouse
Financial planning considerations: Losing a spouse is considered the most stressful life event, least of all because the financial ramifications are enormous and should be navigated together with your adviser. Important considerations include:
- How you were married will impact on what happens to your spouse’s estate in the event of his death.
- Any pension income earned by the deceased spouse may be affected as a result of his death. The pension may fall away completely, or the fund may continue paying a spousal pension. Either way, your adviser will explain the fund rules to you so that you fully understand the effects on your income.
- It helps to be aware of any life insurance or funeral cover that your spouse holds so that you can claim accordingly. Funeral policies generally pay out within 48 hours and help significantly with cashflow during this period.
- Your adviser will need to completely re-work your retirement plan taking into account the changes to your income, living expenses, possible sale of assets, liabilities in your estate, and estate duty and CGT implications. You will also need to draft a new will and nominate beneficiaries in accordance with your wishes.
The best time to find a trusted adviser was at the outset of your career. The second-best time is now.