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Don’t trust retirement advice from anyone under 65

The finishing line has been moved.

I woke up one morning recently, April 1 to be exact, to find that my life’s calendar had gently tipped over into that big number that all us Baby Boomers fear: 65.

There was no rush of blood, no feeling of excitement or despair. In many ways it was just another day. I woke in a strange bed, that of the Lowlands Country House and Manor, somewhere in the middle of the beautiful Karoo, roughly halfway between Steynsburg and Cradock.

It was the third day of a five-day cycling tour through the Karoo (www.gkcycle.co.za) and was my personal “retirement” gift to myself and family. Far better than yet another boring old lunch with a group of grey and greying people, whether family or friends. That would come later.

This was a gift of a different kind to myself: to be doing something exciting with the people near and dear to me: wife, children, daughter-in-law and step-daughter. I recommend it to anyone as a sort of passing out gift. We cycled well (over 220 kilometres in total) and saw some parts of the hidden Karoo which very few South Africans see. Do it: you owe it to yourself and the Karoo. And if you haven’t been on a bike for 20 years or more, fear not, the world of electric bikes has also reached the Karoo.

It also got me thinking about retirement. Or the fact that the traditional retire-at-65-and-live-happily-ever–after as a lifestyle simply does not exist for me. And I intend on keeping that way for as long as I can…..

And the truth of the matter is that it exists for less and less people in South Africa today.

I look around me, at friends, family and even clients, and I battle to find someone who has retired in the traditional manner — namely retire and draw down on your capital until you die. After all, wasn’t that the dream sold to you 20, 30 or even 40 years ago? For the rapidly dwindling number of retirees who managed to remain on defined benefit funds, this still might be an option, but the chances of their incomes keeping up with inflation is also dwindling.

Who moved the finishing line?

Wasn’t 65 (or 60, or 55 or whatever age) the finishing line? That’s when life suddenly turns into this blissful age of carefree living and travelling, depicted in so many grotesque ways by these nauseating images of this perfectly preserved older couple with perfect teeth, hair and skin. I so hate those images that are still dreamed up by 25-year old marketing yuppies who have had no experience in life.

I think all advertising related to retirement should be drawn up by people already retired. All financial planning should be done by people aged 65 and older, who have seen it all. I too find myself in that category. More than 25 years ago I sat down and penned a little book on retirement, called How To Plan for a Happy Retirement. I cringe today when I read what I wrote so many years ago…

However, the book The Amazing and Scary Truth About Retirement (2002), which I penned with Bruce Cameron, was a bit more realistic and reflected a more experienced approach to the curved balls that life throws our way. In the book we warned as follows:

“Your retirement is not what you think it is going to be. Therefore, throw out any preconceived notions that you may have about how you will retire. A radical new paradigm is developing that will change how you invest and dream for the future.”

See what a little bit of real-life of experience can do to blind idealism?

The book tried to warn people planning their retirement about the drastic changes heading their way, not least the dramatic increases in longevity, economic uncertainty and lower investment returns. We furthermore warned that “putting money away for retirement is a postponement of gratification”. But, even at that time it was clear that the average South African was not saving enough, rather spending money hard and fast on conspicuous consumption.Today, a mere 15 years or so later, we are seeing, first-hand the implosion of retirement dreams all across the country. The collapse in residential property prices and the lacklustre growth in the SA stock market has just added to this problem. For many, retirement is going to be a cold and lonely place.

My inbox is often filled with these hard-luck stories. “I have X-amount to invest but I need to draw about 15% of the capital annually to pay all my expenses.” Most financial advisors have similar stories. And the expenses? These include the boat at the Vaal, the beach house in Plett/Sedgefield, maintenance to the ex-wife, children still at school etc. We all carry battle-scars. And this can go on for another 20 to 30 years until the money runs out at some stage, which it will.

Some rules about retirement planning

Here are some universal truths for everyone planning for or approaching retirement:

All retirement planning projections are bound to be wrong. In a perfectly predictable world, they might have some value, but we don’t live in a perfect world, especially not in SA. Stock markets can crash (1987, 1998, 2008), companies go bust (Steinhoff etc.) and global macro events often make a mockery of long-term forecasts. Think about those poor investors who put all their trust in gold and precious metals all those years ago. Gold shares have lost 70% to 80% of their value over the past 20 years. Or imagine having a couple of farms today as your retirement plan.

Ten years or so ago I came across many investors, for instance, who created these (perfect) retirement portfolios on a spreadsheet, based on buy-to-let properties with rising incomes and capital values without any bad debts, a collapse in the property market or errant tenants not paying their rent. Today this a very real nightmare for thousands of amateur property landlords. Property prices on average are down by about 22% in real terms over this period of time. In many parts of the country, property has lost all its value.

Even stock market projections can be dangerous. Take the last three years for instance. Most pension funds or stock market portfolios have not beaten the average inflation rate of 5.4% over the same time. Go and check yours if you don’t believe me. And it doesn’t look like turning around very soon. I previously wrote about the destruction former pres. Jacob Zuma has wrought on the private wealth of SA’s citizens.

They often don’t make allowance for the unforeseen. Life comes with things such as death, divorce, bankruptcy, betrayal or bad health, often blindsiding your meticulous preparation. You cannot plan for these things, yet more often than not we all have to deal with them. Who teaches you those skills?

My advice is to plan for a very long and often active life after retirement. The unofficial retirement age for those who can afford it or is able to arrange their affairs in such a manner, is now well into the 70s and soon, like the Japanese, will be in the 80s.

Your health is almost as important as your wealth. A recent study by Swiss bank UBS reveals that high-net-worth individuals (assets of more than $1 million) will gladly give up to a third of their wealth to live a longer and healthier lifestyle. There is also a very strong correlation between longevity and wealth: the wealthier you are the longer you tend to live, by almost 10 years when compared to less wealthy people. Money buys you better medical treatment, better nutrition and more time to exercise.

Also, plan your post-retirement career. I often come across retirees who immediately embark on a post retirement career, either consulting, assisting spouses or children in their businesses or even starting their own small business. I had lunch the other day with investment guru Mark Mobius, formerly with Franklin Templeton, who on his retirement at the age of 81 earlier this year immediately started a new global fund management company. Warren Buffet manages money at the age of 86 while his partner Charlie Munger is 93 — both of them still mentally very sharp and able.

The best advice I can give people approaching retirement is to simplify their lives. Scale down in almost all respects. Sell that second or third car, likewise the property at the coast (which must be the worst investment for most, in any case), scale down from the mansion to a small cluster and give all your accumulated rubbish away. You are never going to use/repair that old fridge, microwave, couch or broken lawnmower gathering dust in the garage. Oh, how we accumulate rubbish in our lives! But keep your old wine, whisky and all those books that you have been planning to read … “one day when you are retired”.

Consolidate all your investments into a coherent portfolio, one that you understand and can sustain you for the rest of your life. Your investment strategy in retirement should (in theory) be simple for most people. How much capital do you have? How long will I live? And what income do I require? Will it be enough? If it’s not — spend less.

Finally — externalse a great deal of your assets. I know I have been saying this for a long time but it bears repeating. SA is not creating much wealth as a country. Invest for yield in SA but look for long-term capital growth elsewhere. The past ten years in the property market and the past seven years in equity has shown this to be the correct investment strategy. I don’t see this changing. I somehow remain suspicious and cynical about Ramaphoria, and so seems the rest of the markets.

And don’t forget that cycling trip in the Karoo…..

*Magnus Heystek is the investment strategist at Brenthurst Wealth. he can be reached for ideas and suggestions at magnus@heystek.co.za

COMMENTS   42

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Best suggestions I have seen for a long time – thanks Magnus.

And, very true – don’t take retirement advice from anyone under 65!!

Heading towards your 1 April age, I am quite happy to draw down on my capital and investments but I find the sitting around and having nothing to do quite frustrating. It remains a battle for me to find that “second career” – perhaps I am too choosey and risk adverse – but most people want me to invest in them and help them make money – all at my risk.

Magnus, I think your advice is built on a very pessimistic viewpoint from my perspective. You can retire at 6o (or even earlier)if you have decided early on in your life that you will work for financial freedom at a certain age. It does however take years of disciplined saving and living within your means. If one wants to live the high life and speculate with property and other financial instruments you should accept that you are increasing your risk for not being able to retire early. Furthermore you need to invest early on in a healthy marriage (if you are inclined to go that way!) and life style. This all means the effort to retire early needs to come from the person himself/herself…not to wait for life to make things happen…make it happen yourself. Use your common sense when it comes to financial decisions during your working life and live well within your means. Me think there is quite a lot of people out there that have done just yet and who will retire comfortably long before their mid sixties. Your article makes it sound that is is an impossible dream…I beg to differ!!

Well said, Syd. When it comes to financial health, nothing is more important than controlling overheads. Which, as you point out, takes discipline.

Magnus isn’t the only person to ever write a financial book.

I agree with these sentiments entirely. I retired at the age of 57 from my chosen career (voluntarily) because I had many other things to do – ( a long bucket list).

That was 8 years ago.

My Capital equates to 40 x my present annual needs.

And, I stayed clear of all ” financial advisors / experts”.

Hello TaffyDee: Good for you! Not difficult to accumulate that much if you are a good professional in a number of medical professions in S.A..

I don’t think it’s pessimistic….if anything, it’s extremely realistic. It’s not what you think, look at the statistics out there. Ofcourse u can retire earlier, but how many of us really do and make it through the long haul with enough savings and wise investments? Struggling economies, high divorce rates (not so healthy marriages)and longevity are a reality. In an ideal world, your advice is good but under the circumstances, it’s merely optimism.
I think we both need to do that trip to the Karoo!…or should I have planned for this earlier on?

Good advice Magnus . Especially your risk assesment of only investing in SA assets . Capital preservation is the first rule of investment , and at age 66 fact is i dont have enough time left to recover from any major capital loss . Risk assessment is critical for any pensioner , and the old adage of not putting all your eggs in one basket, is sound advice .

I have a different suggestion. Don’t take retirement advice from anyone who isn’t financially independent. Many > 65 year old individuals aren’t. Take warning from them, not advice. Some < 40 year old people are financially independent from many years of living under their means and not trying to be too clever with their investing. Their advice I would take.

I’m at cross roads with this advice. The thing is advice from a 65+ year old to me +-25 year old can not be seen as a science. The world will change so much by the time I retire. Property for example used to be a good place to put money. Gold too as you pointed out. But things changed and people don’t pay rent and minerals aren’t as worthy. Do I invest in insurance companies since they are the on thing today? Nope, for me this advice can come from anyone at any age: live within your means. A man can drive a Picanto or an i10 and upgrade to a Corolla. Anything else is you asking to work until you’re 80. One wife, one child? 2 bedroom apartment is just fine. Don’t buy property as investment, when its value goes up, so do the rates, as Joburg residents and probably Cape ones too.

You answered your own question: (try to) live within one’s means. 100% agree! (And believe me, it’s not easy, since your neighbor & friends will splash on consumer items throughout their lifetime.) If you can live well within your means, you’ve won half of the fight already.

(Only consider Assurance companies’ risk products…e.g. life-cover & dread disease/disability cover, especially if you’re still young with children/spouse. Otherwise, for investments…avoid life-companies…rather invest in shares, ETF’s, unit trusts (by going direct, without paying an advisor fee).

Regarding property….nothing wrong with that asset class (people still pay their rent…mostly)…more important WHERE it is located. Outside SA in a 1st world country would be better. Personally, my biased dislike in property is the acquisition & selling costs (estate agent fees, deeds office, attorneys) and few people actually keep track of all their rental-expenses…it may cost you more than you think / profit is less. Plus real estate is a “CGT tax bummer” when it comes to selling rental investment after a number of years. With shares/ETF/UT’s you can at least sell for profit each year & reinvest, and make use of the R40K annual CGT exemption, as your capital grows over time. Plus property is not as conveniently liquid as pressing a sell-button 😉 Having said that, rental property is still a great inflation-beater come retirement.

Gold: love it or hate it…it’s still one of the most stable asset classes, historically. Minerals will increase in value as the human race keeps digging up limited resources. With new tech developments, the need some certain precious metals will increase, while other decreases. (…dare it say it, we currently live in the ‘plastic era’ *lol*)

You car comment is spot on. If I may add: the best value to get out of a car, is to buy 2-4yr old used car (i.e. still in good nick, with large chunk of depreciation behind it) and drive it for years until worthless, rise & repeat. Avoid higher maintenance German/Swedish/British car brands, and stick to more reliable Jap or Korean cars. With electronics…yup, the Chinese are up there, but not in cars as yet.)

Spot on. He one thing you can be sure of is that everything in your life and in the world will change. And really big time.
But probably still the worst thing in which to put your money is a motor vehicle. Unless you use it to earn income, such as a delivery van.

From the last 4 people that retired at my workplace, only one was to old to carry on working – due to his health. Two of them i thought were around (below?) 50 and I was very surprised that they were in fact 60. It is definitely time to move that ‘compulsory’ retirement age up to 70. It will also go a long way in solving the problem people have with not having enough money to retire.

That’s normally an internal company thing, so you’d have to change it there, in the company.

Great article.

I wish this message would get through to more people. I’ve always been skeptical with retirement advice from anyone in “the industry” and learnt the hard way to some degree from an windgat broker at PSG who has yet to earn me a cent. Thankfully that was only a small amount.

The other side of it is that I have seen older people who are close to retirement going in wholeheartedly and entrusting ALL of their assets for retirement with one adviser who himself has become aligned with a typical house like Old Mutual or Sanlam and is chasing his bonuses for retirement by going with the monthly “news” that these houses publish for their sales people (aka advisers) to punt their clients into.

Needless to say disaster awaits.

I guess I am fortunate in a sense to have studied a degree with finance at varsity and have done my own analysis over the years and have produced far greater returns than any of the advisers I met along the way.

Perhaps I have been lucky. Perhaps I have been logical. Perhaps a combination of both.

My heart goes out to those who have been fleeced and will continue to be fleeced.

In the financial world one often pay a lot of money to individuals and institutions to interpret the future. It then turns out they also guessed incorrectly. As one gets older you become more aware of the fact that the unforseen dominate markets and very few forecasts materialize. The long recorded history of the DOW illustrates this beautifully. The average person does’nt have enough money to diversify effectively in all asset classes over countries and continents; especially if you live in unstable South Africa. Agree with the advice of “Invest for yield in SA but look for long-term capital growth elsewhere”. At the moment a third of the workforce remains unemployed with the manufacturing and mining sectors moving sideways. Can Ramaphoria change this.

What will be the best after 65 if you sell your property…buy a smaller place or renting?

Hello Deon. Please provide more information. The question, as asked, can have many good replies depending on the variables. E.G. Is the house you’re living in now worth R1 million or R10 million?

To me the most fundamental issue around retiring is 1) deciding when you want to retire 2) once you have set your age of retirement understand what you need to do to achieve that retirement date, and this “goal” needs to be revisited every 5 years to review and change course as would be required to meet that date. Knowing now what I do about RA’s and their lamentable performance (those peddled by Insurance Companies) I would never have acquired such products. My RA – now an LA would not have enabled me to purchase my last car 3 years ago – so RA’s are a disaster and you only find out how bad they are when you come to convert them to an LA’s. The only other recommendation is run a monthly budget throughout your working life and then carry it forward into your retirement. I have been on retirement (from age 58) since 2005 and still run a monthly budget and compare against previous years budget just to see that I am still being prudent. Read up on shares and ETF and place your funds in the JSE rather than savings and fixed deposits and grow this investment alongside your pension income, and reinvest dividends and profit back into the JSE don’t live off these investments

Can’t agree more! (and you exercise financial discipline throughout your life. Well done!)

Grahamcr….very prudent comment and one I adhere too

Hopefully the millenial generation will heed similar advice

But please don’t lump you experience, and thus advice, with old school expensive RAs (which given the 2005 year it would have had to be) with new school RAs (which were a new thing).

great advice especially the down scaling and overheads.

I started working at the age of 19, my Dad told me to open a unit trust account and to put half my salary into it ever month and never touch it. That was my RA/Endowment call it what you will.
After 40 years I retired. No overheads and have adequate to live on.

Magnus a word my friend, Lowlands Country House is 30km north of Cradock on the fish River…….:)

So how are you able to put half your salary into an investment vehicle? It seems you were living at home most of your life and/or fortunate to to earn such a massive salary from day one. Seems way too good to be true

To make it clearer, when I started working I got free board and lodging for a while, then half was easy. When things became a little tight I adjusted, maybe should have read always put something into a unit trust. sorry for misunderstanding. Never lived at home while working was a farmer difficult to do that.

Hello Magnus: Time has really flown. When I checked on your age recently, you were 55.

I take my hat off to you long-distance cyclists.

You must have a STRONG cycle.

About retiring? I believe everything you say since you’ve put a few hundred thousand rand in my pocket with a few words of advice. (I am 73)

Good article and some interesting points and while I now agree 100% about externalisation you have to live in SA so it raises a query or two.

1. Is CGT payable on straight currency gains i.e. if you buy USD; the ZAR depreciates and you sell the USD for more ZAR than you bought them for?

2. Judge Davis is dead set on a revenge wealth tax (aimed mainly at whites in my view – his personal letter to BD) essentially as I see it to take more CGT without you selling anything and more estate duty without you dying. Any ideas how this will be applied and when?

From his letter I glean that it won’t apply to pensions (to protect the “workers” – read Brian Molefe cadre types I guess) but just about everything else.

Disagreed Maggie. I got some great advise, late in 2010, while lying in the bath and listening to RSG, from a man on the radio who was well below 65 at the time.

The man said ‘broers, ons gaan nog spyt wees dat ons nie meer dollars gekoop het teen R7 nie’.

I all but robbed banks to buy dollars. What a good move that was.

So I need to return favour to Maggie for excellent advise back then, with advise of my own, and I am not close to 65:

Maggie go cycling at Red Stone Hills and Oudemurargie in the Little Karoo in spring time. Can’t beat that beauty.

I retired at 55 with reasonably modest capital and it is without a doubt the best thing that I ever did. I say this from the perspective of being in my 70s. Some tips:

# Never place your capital at risk
# Never draw against your capital for living expenses
# Never draw more than 70% of your available income.
# Adjust your lifestyle to match your income
# Downscale your home
# Downsize your car (Only 1 if possible)
# Ignore the Jones’s. They are usually financial simpletons
# Try and manage your finances yourself
# Use vanilla uncomplicated investment products and
# NB – NB – NB Avoid the big insurers and captured fund managers like the plague
# Monitor the investment activities of your chosen independent fund manager
# Keep fit by making this a core discipline in retirement
# Carefully watch your diet and weight
# Make sure that you have decent medical aid AND Gap cover
# Do only those things that you want to do. Be a slave to no person or activity
# Strive for tranquility. That may sound soppy but it is important

Cannot stress medical aid enough. I retired 5 years ago, last year needed a back op and a hip replacement. cost me nothing, but discovery had to cough R200k.

How do one go about not placing your capital at risk when you invest for income in retirement and want to beat inflation?

Nothing, I repeat, NOTHING is more important than staying away from financial advisors. Except educating yourself in financial matters.

Music to my ears

Learn’t my lessons years ago with the odeous 3 (OM, Sanlam & Liberty)
FA’s…? Few if any have your well-being in mind

Read, study & learn from the internet if you find publications expendive.
Websitess Morningstar and if you can subscribe to FT.co.uk

One can eventually get savy in investments

Time, understanding & effort will afford one the understanding FA’s proclaim

I like Magnus but the article heading must be questioned. Really, only over 65s can provide trusted retirement advice? I bet you there are under 65s who are providing retirement advice at Brenthurst Wealth. So they cannot be trusted?

The advice needs a small correction : don’t trust retirement advice from anybody charging more than 0.65% of annual distributed income (zero % on the capital)

Great Point.
You wont find a financial adviser that only charges a percentage of the annual yield. that would put him at risk as with his customer which isn’t the done thing in the financial world. They want YOU to take all the risk and they take the reward …

Reading this article and these comments whilst still in my teens is like stumbling upon a goldmine!

Fully agree . I was caught in the trap nearly 25 years ago by a youngster and today i am paying the price. The only positive is i can now advise others not to do the same only if you were there for me when i needed you.

I can reiterate some of the sentiments expressed here.
Know your expenses like the back of your hand
Live “well” below your means (Hardest part is to manage your wife when she finds out)
Pay off your primary residence ASAP
Try and not move from a primary residence too many times (Bond, transfer fees = expensive)
If you have to take on debt, make sure it will finance growing assets only
A car is a depreciating asset. Buy it 2nd hand and drive it for 10+ years.
DO NOT fund lifestyle products with debt (like an electric bike ;-))
Invest time in your marriage & family. Getting divorced is expensive.
Invest directly with asset managers (no middlemen, no insurance companies)
Pick simple, easy to understand and transparent investments (if the product has been designed by an actuary (insurance companies) you will not understand it)
Do your own homework before you invest.
If you expect someone else to do your investment homework for you, be prepared to to be surprised when you wake up before retirement.

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