CIARAN RYAN: Ciaran Ryan here, and I’m talking to Faeeza Khan. She is a legal marketing specialist at Liberty. Welcome, Faeeza.
FAEEZA KHAN: Thanks for having me, Ciaran.
CIARAN RYAN: We are talking about retirement, and more specifically retirement for women. It’s a well-known fact that women live on average longer than men do. Also, with medical science progressing in the way that it is, that life span could be extended even further. That poses a number of problems for women who are looking at retirement. Can you break that down for us? What does that mean in practical terms?
FAEEZA KHAN: I think from a practical perspective it’s quite difficult because, if you live longer, it means that in your retirement years you need to save more, because you’ve got a longer lifespan and you need more savings to sustain you throughout that period.
For women it’s even more difficult. Because we live longer than our spouses at the best of times, and we earn less than our spouses do, we save less than men have saved from a retirement-savings perspective. And so we have a smaller pot of savings for a longer period, which makes it very difficult to be self-sustaining during your retirement years. If you are not self-sustaining during your retirement years, you have to fall back on family, children or the state.
CIARAN RYAN: One of the things that, when we were speaking before, you mentioned was the divorce rate in South Africa. I find that quite frightening. Just explain what that is, and what impact that has on retirement savings for women.
FAEEZA KHAN: The divorce rate, I think, at the moment is that three in five marriages end in divorce within a 10-year period.
CIARAN RYAN: That is frightening, yes.
FAEEZA KHAN: And women are at an average age of 44 years when they get divorced. A lot of those women have either never saved, or they were never part of an employer’s pension fund or provident-fund scheme. They never had retirement annuities because they believed that they were going to retire with their spouses, and that their spouses retirement income would be sufficient for both of them.
So, at 45 or 44 you get divorced and you’ve got to start from scratch.
CIARAN RYAN: Is there any statistic on divorced husbands who are not financially supporting their wives?
FAEEZA KHAN: I’m sure there is, but I don’t have that.
CIARAN RYAN: At age 44 there is a good chance – boy, this is bad news – that you could find yourself divorced and you now have to start looking after yourself. You have to start saving for yourself. So what do you say to a woman who is 45 years old and has no life savings? It seems a bit hopeless to start even confronting savings at that point. What’s your advice to them?
FAEEZA KHAN: I think yes, that’s absolutely frightening. At 45 years old you’ve got 20 years to retirement, so people generally are retiring at anything between 55 years old and 65 years old. If you are 45, as a women, and you haven’t saved for retirement, you have to start. There is no option to just sit back and do nothing about it. Unfortunately, even if you have a little bit of income somewhere that could be saved, that’s what you need to save. You’ve got to start somewhere, and you’ve got to do some financial planning and figure out what your goals are.
If your retirement pot is maybe on the low side, you’d have to do whatever is possible to increase your retirement savings. So you’ve got to use any disposable income that you have; you’ve got to perhaps try and figure out where you can get a passive income; and you’ve got to utilise all of your tax deductions that you possibly can on your retirement annuity, and then plough that rebate right back into that retirement annuity. Perhaps use your bonuses to also supplement your retirement savings. Your retirement savings have to become the focal point of your financial planning if you have not started by age 45.
CIARAN RYAN: What do we mean by “start”? If you’ve got a spare R300, is that a start? It’s not going to make a big difference if you need millions in retirement.
FAEEZA KHAN: Yes – half a loaf of bread is better than none! When you do the analysis of what is needed and how much you need to save from a time/value/money perspective, those values are frightening. They are large and, even for people who are saving towards retirement, sometimes feel as though they are not enough, and never will be enough.
However, if you are a little realistic and you think about what your retirement expenses are going to be, and if it means that you need to lower your standard of living to a level that is comfortable but perhaps not what you have been used to, then that’s where you start. That should be your starting point. And then perhaps the R300-a-month savings will get you to some point, or maybe then the dependency that you have on your children isn’t going to be as high. Perhaps you’d only need them to support you with R500 a month as opposed to R2 000 a month.
CIARAN RYAN: I think one of the things that we discussed before is really about getting into that habit of saving. So, if it does start with R300, and you’ve got 20 years to go to retirement, the power of compounding interest will work in your favour, and also by that time you will start to see the results. And if you get an extra R1 000 or R10 000, you are going to throw that into the pot as well, and it’s just going to grow by itself.
FAEEZA KHAN: Absolutely. Those habits are important to form. It does become a little bit addictive when you do start saving, and you don’t particularly want to plough into your savings unless you really, really have to.
So when we start and get that culture of savings going, we need to also filter that through to our children, and teach them how to save and teach them how to earn money and how to spend it wisely – and also how to save it so that when they are adults it’s not difficult for them. It’s their normal. In South Africa, in general, we’ve got a really, really poor savings culture. We spend most of our income on debt, as opposed to savings. So, if we try and increase that savings culture, then perhaps in the long run we will be better off for retirement purposes.
CIARAN RYAN: That’s a point. South Africa has a notoriously bad savings rate, but women are particularly bad because of certain historical factors. They have traditionally relied on the husband. They thought they are going to be married “till death do us part”. Okay, that didn’t work out, so now they find themselves in midlife without any financial lifeline. Are there any other factors that are impacting this particularly low savings rate for women?
FAEEZA KHAN: I think that it’s quite frightening. Women seem to have received the raw end of the deal, and they are stuck between a rock and a hard place at the best of times, because a lot of households that have children – I think about 50% of those households – are headed by single mothers. So we have women who need to save, but they are supporting their children. There are only a small number of those households that are receiving additional support from the children’s fathers. This then makes it more difficult. Those women are also supporting their parents, so they are supporting their children generally single-handedly, and they are supporting their parents. That’s known as the ‘sandwich generation’.
There are also women who are supporting their extended families to try and help those family members to put food on the table, or get to work, or apply for jobs. That’s the ‘black tax’ that women are paying at the moment.
CIARAN RYAN: It creates a lot of emotional resentment, I know. We’ve spoken about this with a number of people. It creates huge family problems.
FAEEZA KHAN: Absolutely. And there is also the ‘pink tax’ aspect, where women have to pay more for goods that are ‘pink, from cradle to grave.
CIARAN RYAN: Just explain that.
FAEEZA KHAN: Girls’ toys are more expensive than boys’ toys.
CIARAN RYAN: Oh, really?
FAEEZA KHAN: Yes. There is a tax on sanitary towels and tampons for women. Your razor blades–
CIARAN RYAN: That was recently zero-rated for vat.
FAEEZA KHAN: Yes, from a worldwide perspective as well. So your pink goods – your shaving cream and your razor blades, if marketed for women, are generally more expensive.
CIARAN RYAN: Wow! I didn’t know that.
FAEEZA KHAN: So it’s more difficult for women to save because they’ve got less money to save. They don’t earn as much as men do, and they’ve got all of these other obstacles. But, that said, they still have to save.
CIARAN RYAN: How do we correct this? Do we start with a financial advisor? What do financial advisors cost, and how do you find them?
FAEEZA KHAN: A financial advisor is someone who can assist you with your financial planning goals. That is very important, because you don’t need a financial advisor to buy a financial-planning product. You need a financial advisor to help you establish what your financial-planning goals are, and a person who is going to walk you through this financial planning journey.
There are quite a few financial advisors out there. You can google financial advisors, or you can approach a life-insurance company and they can refer you to a financial advisor. You could speak to your friends and your family, and they can refer you to a financial advisor. You’d possibly have to interview more than one financial advisor to find your fit. Generally, financial advisors at this point aren’t charging a fee for their services, because they are generally paid commission. Some financial advisors do charge a fee; some don’t. That would be a factor for you to consider. A lot of financial advisors will come to you, to your place of work or your home, and have meetings with you in your personal space. So there is not a lot of effort that’s required from your side.
But the important thing about a financial advisor is that you can’t just use the financial advisor that your father used, or that your husband uses. It has to be someone who relates to you as an individual, because your financial planning must be different. And you must have a relationship with your financial advisor that is open and honest, and with whom you are happy to disclose all of your financial infrastructure, because he or she needs that information in order to assist you.
CIARAN RYAN: There is another aspect to this, as well. For a lot of people, when they sit down with a financial advisor, they get, for the first time, to confront what their life goals are. What do you want to do in 10 years? Where do you want to be in 15 years? A lot of people are just going day to day, and not really looking at those life goals. So the financial advisor is going to push your face into that, right?
FAEEZA KHAN: Absolutely. That’s called goal-based planning and holistic financial planning, because you have to look at every single aspect of your life, and how that specific aspect of your life needs a financial plan. So it could be goals-driven from an investment perspective. It could be that you want to travel in the next five years with your children, and you’ve done a cost analysis, and in today’s terms it’s going to cost you R50 000. Your financial advisor is then going to do some calculations to see what the value of that R50 000 in five years’ time is going to be, and how you need to save in order to get to that point.
Then your financial advisor is going to give you a solution, and that solution would be a financial-planning product. That’s the only point at which a financial advisor starts discussing products – after you know what your goals are, and what you want to achieve.
CIARAN RYAN: I was going to come on to that – products. The products available for the retirement industry are sometimes quite hard to understand, because they’ve all got different tax implications and they are structured in different ways. So would you say that it’s more important to develop the habit of saving, rather than to worry about what products specifically you are going to invest in?
FAEEZA KHAN: I think that the goal is the first point of call. What is your financial planning goal, because your financial planning goal is going to determine the type of product that you are going to use. An example would be that, if you are a self-employed individual and your financial-planning goal is to save for retirement, then the product option would be a retirement annuity, because if you don’t have the option of having a pension fund or a provident fund or a preservation fund that you can just join. The only option is a retirement annuity.
CIARAN RYAN: A self-employed retirement annuity is all you can get. But if you’re employed, then you have pension fund, provident fund and these other things.
FAEEZA KHAN: Correct. And, also, a retirement annuity. So the options just become greater. If you want to save for your children’s education – and that’s a long-term savings goal, then you could use either an endowment type of product or a unit trust type of product, and then you’d need to compare the fees. You’d also need to consider that with an endowment you are kind of stuck in that endowment for a five-year period, whereas with a unit trust you have more access. Then you have to ask yourself the question: do you want the access, or do you want to be stuck in an investment for a longer period, because that is your goal?
So the goal will always determine the product.
CIARAN RYAN: And of course we are talking about people who generally may not have savings, but there are of course women who’ve got savings, but it’s sitting in a bank account, which is not necessarily the best thing to do.
FAEEZA KHAN: I think that also depends because, if your goal is long-term saving, then a bank account, I’d say, is definitely not the right place for you. However, if the goal is to have an emergency fund, then the bank account is perhaps the right place because there is minimum risk there – generally invested in money markets.
But as soon as you start wanting to save for a longer period, three years, five years, 10 years, 15 years – then you need to diversify your investment portfolio, so that you have access to equities and cash and bonds and property, so that you have the ability to grow that investment. If it is in a bank account over that period, then inflation will generally deflate the capital value of that money.
CIARAN RYAN: Right. And of course, if you are starting to save late in life, there are products there which can accelerate. They are a little more aggressive, should I say, in terms of the final goal. So there are those available to help you speed up a little.
FAEEZA KHAN: Yes, but it is all market-related. So it all depends on what the market does, and it also depends on what your appetite for risk is, because the type of portfolios that do have the potential of giving you a great return are also the types of portfolios that are quite risky.
CIARAN RYAN: Okay. Let’s move on to something a little more serious. There is a document called the will. Nobody wants to confront this. It’s like the document of death.
FAEEZA KHAN: Literally.
CIARAN RYAN: But it’s important that you have one, because you see so many estates get into an awful mess because there isn’t a will. Just explain, first of all, what that is, and why it’s important to have one.
FAEEZA KHAN: A will is probably one of the most important documents you ever draft in your life, and every single person must have a will. It is a document that will provide whoever you leave behind with some sort of acknowledgment of what your last wishes were. That is the document that will dictate how your estate will be wound up, and who will benefit from your assets. In the absence of a will, what will happen is that the intestate succession act will dictate who your heirs are and who will inherit from you. If that was not your intention, there is no way to rectify it.
CIARAN RYAN: It’s quite simple, actually, to put together?You can almost do it yourself?
FAEEZA KHAN: You can do it yourself, absolutely.
CIARAN RYAN: So what are the preconditions for a will?
FAEEZA KHAN: A will must be in writing. You must have metal capacity; you must be of sound mind. You must sign your will and you must have two witnesses that are present.
CIARAN RYAN: That’s it?
FAEEZA KHAN: Yes. Your witnesses can be from age 14 up, and the testator, the person who is drafting that will or the person whose intention is embedded in that will, must be from age 16 up.
CIARAN RYAN: Okay. And if you can’t sign your name, you can actually sign it with a thumbprint.
FAEEZA KHAN: Yes, or a mark. And if you use a mark or a thumbprint there must also be a commissioner of oaths that is present while you are signing your will, and the witnesses are also witnessing that it is you signing your will.
CIARAN RYAN: Explain what a testator is – I didn’t quite understand that.
FAEEZA KHAN: A testator is a person who is leaving the last will and testament. So on my will I would be the testatrix, because I am a woman. On your will you would be the testator.
CIARAN RYAN: Now, I presume that everything we’ve discussed today applies as much to men as it does to women.
FAEEZA KHAN: Absolutely – besides pink tax.
CIARAN RYAN: Final point then. What would you say to women of any age who are either starting out in their careers or who find themselves in midlife, well into their careers, who perhaps haven’t set their financial goals for life. What’s your advice to them?
FAEEZA KHAN: The first step would be to find a financial planner, a financial advisor, who you are happy to do business with; that you are happy to walk this financial planning journey with. Then you need to set your financial planning goals and whatever those goals might be – it could be retirement, it could be short-term savings, it could be your estate planning, drafting a will, looking out for your minor children – whatever those goal are. You can tackle those goals piecemeal. It doesn’t have to be all in one go. You can have many meetings with your financial advisor and at each meeting you can try and fulfil the next goal.
CIARAN RYAN: Right. A point that often comes up is that people, through various stages in their career, have built a savings pot. Then an emergency comes along – maybe a child gets sick and they don’t have medical aid, and they’ve got to take that money and pay the hospital. At that point they break this habit of saving. It’s quite important, isn’t it – that if that happens, if you have an emergency – that you actually pay back that emergency fund that you borrowed from.
FAEEZA KHAN: Absolutely. You’ve got to replenish it, you’ve got to keep it at a level that you are comfortable with. And if you do end up using a portion of it, it must be for an emergency – that’s the first thing. You can’t have an emergency fund that you use for holidays. Then, if this emergency does happen – your house gets flooded and you don’t have insurance, or your kid goes to hospital, like you said, and you need to pay doctors’ bills – once those expenses have been paid, you need to start putting the money back. It becomes a little bit of a dividend yield, because where are you then going to get this money from to replenish? It’s like every other savings question – you start somewhere. If it means that you are starting with the R50 a month that you have, that’s where you start.
CIARAN RYAN: So there you go. You can start saving with R50 a month. It’s a good place to start. Faeeza, thank very much for coming in.
FAEEZA KHAN: Thank you so much for having me.
Brought to you by Liberty.