JOHANNESBURG – Does the fact that you are an accomplished rugby player with great earning potential guarantee that you can retire in comfort after an illustrious career?
Speaking at a media conference ahead of the Investment & Retirement Expo, Efficient Group CEO Heiko Weidhase said an international study has shown that 65% of sportsmen go broke within just a few years of quitting professional sport.
“In South Africa I believe the numbers and the situation is even worse.”
Victor Matfield, Springbok rugby player, said for many of the rugby players just starting their careers, the biggest problem is probably spending habits. But as players get older they realise they will have to stop playing at some point and start planning for “retirement”.
Matfield said unfortunately there is a lack of financial education and players are often uncertain about how they should approach the issue. As such, a lot of the guys make bad investments and get involved in ill-advised businesses with friends.
Matfield said he got involved in some of these businesses.
“And what happened to me is a year later there was a R1 million bad debt in that business.”
His friend walked away from the business and he had to face the music.
“So I had to go in and I had to pay the R1 million out of my pocket just to save face. That’s just bad investment and a lot of the guys do that.”
Rugby players often receive bad investment advice.
When he started his career there were advisors looking after the portfolios of rugby players and assisting them, but after a while the advisors got greedy. Some players started managing their own investments and many of them lost money.
Matfield said although many players live a good life while playing they still need an income at 33.
It is often difficult for rugby players to adjust from an environment where they earned between R1 million and R3 million a year, to a situation where they must live on R300 000 a year, he said.
Weidhase said although players have access to financial experts, they could still make mistakes.
It is therefore important for players (and other investors) to be informed and to educate themselves to make better investment and retirement decisions.
It is also critical to build a relationship with a good financial planner who will assess an investor’s needs, assets and liabilities and help the investor to achieve their objectives and to adjust their financial plan where necessary, Weidhase said.
Financial plan similar to game plan
Peter Hewett, Efficient Advise founder and the Financial Planning Institute of Southern Africa’s 2014 Financial Planner of the Year, said similar to a rugby game plan, investors also need a financial planning strategy.
Investors have to start with some research.
“Don’t just go out and select the advisor that you first come across. Go research the advisor. Find out what experience he’s got; find out what qualifications he’s got. Make sure that he’s competent to provide you with the advice that you need. Make sure that he has relevant experience in the industry,” he said.
Thereafter investors have to set their goals and strategy in consultation with the advisor. This needs to incorporate emergency, short-term financial requirements, medium and long-term requirements and it is “critical” that investors also look at their family responsibilities, he said.
Hewett said very often people plan purely for retirement because they believe nothing will happen to them or their families.
“It’s a big mistake. We’ve seen a lot of people’s families suffer dire consequences of inappropriate planning.”
Hewett said an appropriate asset mix is also a very important factor. Very often people place all their funds in a compulsory or retirement-type product and when they get to retirement they have limited structuring capabilities.
“So you draw everything from a compulsory product. It’s fully taxable, you don’t have the ability to structure your income needs over various time frames. Remember as you get older you get different types of tax incentives, so you can’t take advantage of those tax incentives because you haven’t created a mix between discretionary and compulsory money.”
Hewett said investors also have to make sure that the products that are sold to them deliver on their promise.
At the moment there are people advertising 19% guaranteed interest rates, but the bottom line is that you cannot earn a return of 19% on an interest rate on a guaranteed basis, he said.
“If it looks too good to be true it probably is. That’s a very basic rule.”
Once investors have gone through a proper financial needs analysis they should implement their plan and continually review it.
Hewett said many people meet a financial advisor because they have an immediate need, but after they have bought an investment product, they never see the advisor again.
“That is inappropriate advice and it really isn’t going to help you achieve your goals.”
He said it is important to make sure that there is an initial service level agreement with the advisor, which lays out exactly what the advisor is going to deliver and how frequently.
The table below highlights the best and worst ways to spend money, according to Hewett.
|Emergency Fund||Retail credit|
|Invest for retirement||Luxury vehicles|
|Build up discretionary funds||Keeping up with the Joneses|
|Equity and property||Pension fund withdrawals|
Weidhase said while it is important to stick to a financial plan, investors should also keep in mind that economic and personal circumstances change and there might be instances where plans will have to be adjusted.