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Retirement planning inertia

It is time for the annual focus on retirement annuities and tax-free savings.
Image: Shutterstock

With retirement season upon us it is time for the annual focus on retirement annuities and tax-free savings. Sadly, this annual focus does trivialise the importance of appropriate planning for retirement as the financial services industry moves into overdrive for what is seen as the industries own “black Friday sale” into what is called the “retirement season”.

Most of the campaigns and messaging that will no doubt be clogging up your inbox focuses on the benefits of retirement annuities and tax-free savings and how the tax man helps fund your retirement. Often, we see this as the opportunity to get some of our hard-earned money back from Sars, specifically as we feel that our tax rands are not working for us so why not get some of it back to work for our retirement?

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Even though the messaging and the tax savings may be enticing it probably does very little to address the retirement challenge in South Africa where only 7% to 10 % of people retire with enough money for a comfortable retirement. The Fidelity Retirement Survey and Retirement Mindset report provides some insight into why people don’t plan for retirement, the research is conducted globally and even though this does not specifically focus on South Africa, I suspect that similar research in South Africa will have the same conclusions.

The lack of retirement planning (financial planning) is not only a South African phenomenal, globally only 18% of people surveyed have a retirement plan in place. This is significantly higher than the estimated 6% of South Africans that have a plan in place and that are executing on this.

From the South African research conducted by 10X it seems the reason for most South Africans not having a retirement plan in place is the lack of funds available to save and the mere fact that for most, retirement planning is not, yet, a priority. I do suspect this does miss the deeper insight provided by the international research that I do believe starts unlocking some of the psychological barriers to the lack of retirement planning.

Even though there are some differences across the age groups Fidelity identifies four reasons as to why people do not have a retirement
plan in place as per the table below.

Part of the inertia in staring a retirement plan can probably be attributed to the industry jargon and complexity and often trying to
overcomplicate relatively simple principles. I am always reminded by the words of one of my colleagues that retirement planning is simple,
there really are only three things that you need to do that you can control; invest as early as possible, save as much as you can and work for
as long as you can. This really does cut right to the crux of retirement planning. In refining the retirement plan the fourth key variable is earning an appropriate return, this can get a bit more complex but to start you just need to be invested in a balanced portfolio that is designed for retirement planning.

In getting from inertia into action Fidelity identified several baby steps that respondents believed will get them from inertia into action;
starting to save whatever I can each month and talking to a financial professional rank as the top two ways to get your retirement plan into
motion. Interestingly using online planning tools ranked at the bottom of the list, this is probably explained by the need for personal engagement to help make the this a bit less overwhelming.

If you want to get started on your retirement journey you can find a reputable financial advisor on the Financial Planning Institute’s
website and remember the most important thing is getting started, with whatever you have.

Wynand Gouws is a certified financial planner.


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Personal engagement that will cost an individual 2-3%.

@khande please send me the link to the registered LISP platform where an advisor can get between 2-3% ongoing fees

Most South Africans seem to believe the government will take care of them in their old age. Many feel their employers should do the same. Despite never contributing to any kind of retirement fund during their entire working life. A huge sense of entitlement, wanting something for nothing, which is bound to backfire unless the socialist government carries on robbing Peter to pay Paul.

Why don’t people plan for retirement? Perhaps they’re struggling to survive just to the next paycheck. Perhaps even professionals have seen their salaries stagnate while electricity, taxes and food prices skyrocket.

Do not put your bucks into anything that can be stolen, by the ANC government.

“…remember the most important thing is getting started, with whatever you have”

Last sentence in this article worth noting

Before rushing off to a FA ..and they will always offer first free hour consult for free, try a good tax consultant

Many are handling the affairs of those with diverse portfolios that they advise tax on…they can comment on which investment funds (long) are worth considering without giving you a monthly haircut on % fees on advice

Think of it like getting free advice from your pharmacist before your paid visit consult with your doctor for the same advice

I see that the usual “costs for planning for your retirement” is raising it’s head again (as per usual). Funny how some people that keep regurgitating the same “costs” rhetoric won’t bat an eyelid for paying 7% to a real estate agent. The latter being a once off service being provided where the decent adviser is happy with ongoing service to customer whether they make any changes or not. Some tend to forget the tax benefit that is guaranteed to those that have taken up an RA or tax free savings. Compound those tax savings over the years and compare that to the “costs”; I am sure the picture would change substantially then. Rather target what really hurts the RA investor like Regulation 28? I have bumped into many that keep harping on about “costs” then bemoan their fate about the rising “costs” of living when they haven’t saved anything/enough when they reach retirement. The “costs” argument is so well worn by now yet there are still those flogging that dead horse. It’s analogous to refusing to put fuel in your car because of the fuel levy and the associated rise of that “cost”. Rather just save something then instead of missing the woods for the trees because of “costs”

I’m going to assume you are a FA and if you cannot understand the impact of costs, allow me:
10% return
6% inflation
4% real return

So with fees of 3%, you are effectively paying your advisor 75% of your returns (profits), which I can safely assume you do not explain to your clients in these layman terms

Imagine this conversation with your clients:
– thanks for your presentation, but what are your fees
– oh not much, we take about 75% of your profits made, or if I fail to make any profits, we’ll take it from your capital (win win for me, you not so much)

To argues fees don’t matter in this day and age is laughable

An advisor on a lisp platform is allowed max 3% upfront fee on a lumpsum and 1% ongoing. Please show me how you get the 3% fees?

A CFP drumming up more business again….

1% on-going for advisors is confiscatory and not sustainable if successful retirements outcomes the goal. While good financial advice is worth a fee THERE IS NO WAY IN HELL it can be valued at 1% per annum of assets. Fees are rightfully coming down on asset management and it is time for the authorities and/or investors to take a stand against outrageous asset-based advisor fees which are in fact a form of advisor ‘commission’ paid by the client but authorised by the lisp i.e. payment happens irrespective of service. In my opinion, a max of 0.25% if the mechanism remains.

If a new client requests an appointment and he has an RA at Company X with a fund value of R100 000 and a monthly contribution of R500, my advice would be to move it from the life platform to a lisp. This means a section 14 transfer. The amount of paperwork and follow-up needed to finalize a section 14 is more than any other product out there, saving the client a minimum of 1-2,5% life platform administratiin costs. Depending on his age it may be millions over the next 30 years

So okay great, after two appointments with the client, travel, needs analysis, paperwork and compliance(record of advice(8 pages) and RAR(7 pages) ) and admin follow up every 2 days the R100 000 finaly arive at company Z the Lisp.

Now a R100 000 x .5%(industry ave) =R500 pa(R41. 66pm) fees. Then next year you have to book the client for an annual review. Try to convince him not invest in MTI because its a scam and then gets challenged langed because the portofolio return were only 10% and we are aiming at 12 %, and convince the greedy client to sign a section 14 fee renewal form. If not signed your R41. 65pm falls away.. Tsek!!!

So much for giving the right advice to the lower net worth client. The higher net worth clients never question fees because they dont mind paying someone to handle their assets.

Fair enough. So you do more work upfront or in the first year, so why do you get the same percentage fee every year thereafter when it is a matter of tweaking or maintenance? I am not against quality financial advice just the very high cost thereof and the massive implications of high costs, across the system, on individual retirement outcomes. Fact: Retirement outcomes are poor. Fact: High costs play a massive role in these poor outcomes. Fact: Until something is done about costs retirement outcomes will remain poor. You must realize that after asset management, advisory and platform fees the investor is on a hiding-to-nothing. You know the numbers I don’t have to explain to you the impact of high costs. Opinion: The fees in aggregate should not amount to more than 1% otherwise the client ‘loses’ or the client should go DIY. My suggestion of average fees: Asset management +/-0.7%, advisory 0.2% and platform 0.2% to a MAX of 1%.

Using the same example as above. R100 000 @ 0.2%fee =R200pa/12=R16.66 pm.

If I manage to see 4 clients per day, 5 times a week for 50 weeks a year. I will see 1000 clients @ R16.66 per client per month R16 666pm. That is if every client is willing to renew their fees.

R16 666pm won’t even get you a proper assistant. The effect of your fee beating approach is that advisors only service high net worth individuals and leave the lower-middel class who needs proper advice the most to the “Forex Trading”, “KaratGold”, “MTI”, “BoTTrading” sharks out there.

End of comments.





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