Instead of giving your dad a new tie or some socks this Father’s Day, how about giving him some advice that will change his life.
An astute son or daughter who is reading the Financial Times, the Economist, or following Warren Buffett and the like will know that most people saving for pensions are getting a raw deal.
Sharing this information with your dad might save him hundreds of thousands of rand and a lot of pain.
Tell him that it is never too late to improve his retirement outcome.
Whether it is pre-retirement, making sure you know the fees you are paying and the portfolio you are invested in. Or, even in retirement, most people are totally unaware of what they are paying in fees on their living annuity, or what portfolios they are invested in.
A piece of advice that will meaningfully change your father’s life is a lot better than any number of new ties or pairs of socks.
Many of the 9 in 10* South Africans who cannot afford to retire in any comfort have been saving for years, and a lot of them have advisers too.
In fact, leaving their retirement entirely in someone else’s hands often leads to disastrous outcomes for retirement savers.
Remind your dad that no one cares more about his money than he does (or maybe his family). It is never too late to take charge, to start asking the right questions and to make decisions that improve your retirement outcome.
There is a lot of information and online tools to help. The 10X retirement calculators for example, are a very good starting point. You could help your dad work out how much he has, what he will need and how to make sure the two numbers eventually match up.
Many people only really interrogate the numbers when they reach retirement day, by which time a lot of opportunities to improve their situation have been wasted.
This is why so many people are forced to downgrade their lifestyle suddenly in retirement. Don’t let your dad be one of those.
Most South Africans invest in a living annuity at retirement, drawing an annual income equal to 5% to 6% of their retirement capital. But this excludes fees, which average 3% comprising an advice fee of 0.75%, an investment management fee of 1.5% and an administration platform fee around 0.5%, plus VAT. So the drawdown rate is actually 8% to 9% not the 5% to 6% your dad may think it is.
Your dad’s retirement capital is likely to run out much faster than he realises.
The 10X living annuity calculator shows the impact of high fees on retirement capital and will also optimise his investment portfolio to give him more income in retirement.
One adjustment that costs little or nothing is to reduce the fees he is paying on his investments. Shaving 1% or more on the fees he is paying by moving to a low-cost provider could give many extra years of income.
Now there is a Father’s Day gift worth giving.
National Treasury estimates that 94% of South Africans cannot afford to retire.
Steven Nathan is the founder and chief executive officer of 10X Investments.