Money must be a family affair

By Suzean Haumann, CFP®

Numbers of women who are economically active, either in formal employment or in entrepreneurial or trade ventures, have grown steadily in the past decade. The traditional family unit with a husband as the main breadwinner is changing. Having a joint income has delivered significant financial benefits to families.

Yet many spouses do not always approach family finances in a coordinated, sensible way. For many this approach works absolutely fine, until the unexpected occurs. A divorce, retrenchment or other unanticipated events quickly expose the fault lines of a relaxed money management style.

Five issues to focus on for sound money management for couples:

The household budget

Agony Aunty columns in consumer magazines are flooded with requests for advice about household finances. A husband complaining that a wife spends too much (even though she earns a salary of her own and contributes to joint finances); a wife saying her husband manages all the money earned in the household and she has little say; a spouse ‘hiding’ money in a separate account. A comprehensive household budget that lists all income and expenses (including savings) is an important starting point. Thereafter a decision must be made about who pays what. One spouse can, for instance, pay all costs related to children. e.g.  school fees, sport activities, clothing; groceries; household assistants like a domestic worker, gardener or child minder, and entertainment costs like cable tv subscriptions, while the other pays the bond or housing costs, medical aid and insurance. How the expenses are covered is not that important, joint decision-making is.

Investing

Successful investing for couples requires setting joint investment goals as well as individual goals. Joint goals can center around long-term plans for retirement or investing in property (typically the family’s residence). Individual goals are important as statistics show that women outlive men by several years. Which means provision must be made for sufficient funds to manage the household or have enough for retirement for the surviving spouse. This does not mean a joint investment is the ideal way to go. As with setting a budget joint involvement is what is required. Using one adviser for both spouses is advisable as the advisor will make sure the investment strategies are aligned and that each individual’s personal investment approach and risk profile is considered. Having separate investment portfolios also provides protection if a spouse dies as the remaining spouse will have access to funds while the estate is wound up (if not married in community of property). Nobody gets married with the plan to divorce but again, statistics show that this is a reality. Individual investment portfolios will thus also have great value should that happen.

Everything does not need to be the same

Respect one another’s viewpoint. Men are often willing to make riskier investments while women may prefer a more moderate approach to investing. A share portfolio might be the perfect fit for him, but she is much more comfortable with a fixed investment. There is room for both with the correct planning. By incorporating the combined financial plan and seeing the same adviser these risk appetites can be incorporated to satisfy the needs and goals of each investor, make both feel comfortable and their opinions valued.

Be prepared that things may change

When you initially married your life looked different. You were young and at the beginning of your life. As you grow older there might be opportunities to make changes to your career or realise a dream. You might need to take a sabbatical to finish your studies, reducing your monthly household income and savings. Be open to your spouse about these opportunities or potholes. Make a conscious choice to talk about things that might influence your financial plan, see a financial advisor at least once a year to adjust the plan if needed.

Always have a will in place

Not having a will in place can be one of the most devastating financial events in the event of the death of a spouse. It creates a myriad of complications for the surviving spouse and could result in short term or even long term financial hardship. A will needs to be reviewed at least every three to five years or immediately when circumstances change. Something like the birth of a child, divorce, buying of property or acquiring an offshore asset, are matters that have an impact on estate planning and must be included or specified.

A spouse also needs to know if he or she is nominated as a trustee of a possible testamentary trust and be informed what the trust is set to achieve and what the expectations will be of the trustee.

Making money matters a family affair will not only contribute to household harmony, it also provides protection when the unexpected occurs.

Read more about the value of professional advice: Client and advisor relationship.

Suzean Haumann is a Certified Financial Planner® at Brenthurst Tyger Valley office. suzean@brenthurstwealth.co.za

Semigration boosts coastal areas

Val de Vie Estate. Photo: Supplied

Two noticeable demographic trends developed in the past decade or so amongst higher income groups in South Africa. The first was growth in the number of people and families who left the country and relocated to countries like New Zealand, Australia, the USA and UK.

The second and bigger trend, is the number of people who migrated from the northern parts of the country to coastal areas, especially the Western Cape.

Towns like Stellenbosch, Cape Town, Paarl and Franschhoek as well as other regions along the Cape coast have experienced a significant influx of families seeking a new lifestyle.

This was a driver for the growth of wealth management companies, and many have added offices to serve the growing client base in these areas. Brenthurst Wealth is one of those that added more offices in the Western Cape to manage the higher demand. The company now operates offices in the V&A Waterfront and Claremont in Cape Town, Tyger Valley in Belville and Stellenbosch in the winelands.

In addition to the migration from Gauteng, a further migration has now picked up pace with residents of Cape Town relocating to areas out of the city. Partly because of traffic congestion and also crime but also for a ‘country’ lifestyle. Estates like Val de Vie in Paarl and Delta Crest in Stellenbosch and others have experienced this influx.

“Before the COVID-19 pandemic many people already researched relocation away from the city, but as business operations changed this year many professionals realised they can work remotely and do not have to be at an office every day. Technology like Zoom and MS Teams and others made it possible to maintain office communication without physical presence at an office,” says Ryk Neethling, head of marketing at Val de Vie.

This growth has led to the establishment of another Cape office for Brenthurst Wealth at the Polo Village office complex at the estate.

“Val de Vie is a rather unique estate and offers a great lifestyle. Residents include successful businesspeople, entrepreneurs and professionals who are interested in building global wealth. We established the latest office on the estate to serve them efficiently in the personalised style such investors prefer, without having to travel anywhere” says Magnus Heystek, co-founder, director and investment strategist of Brenthurst Wealth.

“There is great awareness and interest in investing offshore, where the best returns have been realised for almost a decade now. The local market has experienced very low to no growth and investors are moving investments to international market to build and protect wealth,” Heystek says.

Beyond adding more offices Brenthurst has also expanded its service offering to clients with international assets. Estate planning for offshore assets requires knowledge and experience in the legal requirements and issues like tax regimes in different territories. We have two such legal experts in-house – Malissa Anthony who serves the Western Cape Region and Rozanne Heystek-Potgieter who serves the Gauteng region. “They guide clients about offshore wills and the winding up of international estates and also the setting up of trusts via the Brenthurst office in Mauritius,” Heystek added.

Andre Basson

Financial Advisor André Basson, runner up in the 2020 Intellidex Relationship Manager of the Year award, has been appointed as the head of the Brenthurst Wealth Val die Vie office. Brenthurst Wealth won the Intellidex Top Boutique Wealth Manager award for the second time in 2020.  andre@brenthurstwealth.co.za.

What you need to consider for retirement at every life stage

By Marise Smit, CFP®

Marise Smit

Saving for retirement is considered by many to be a very important, if not the most critical, component of an overall financial plan. Yet many people delay getting a proper retirement plan in place, or save too little, or not at all – for retirement or other financial needs – as the many reports reviewing the SA savings culture has shown for decades.

Some have retirement saving strategies in place but do not really review it regularly or pay attention to the investment vehicle they chose for retirement or worse, take a serious look at the returns they are achieving with whatever investment they have in place.

The investor’s age – or stage in life – requires steps regarding retirement. This is a guide of what to consider. The most important thing to do is to not delay getting a plan in place or adjusting an existing plan to current realities.

In your 20s, for most the start of working life

Start with a savings plan aimed at retirement from your very first paycheck. If the company you work for has a pension plan in place, be sure to join that. If not, find another investment vehicle, for instance a Tax Free Savings Account or Discretionary Investment Portfolio, and set up regular contributions with an annual increase of that contribution. Many financial planners suggest saving 20% of your monthly income. At the start of a career this may seem like a lot but do aim for this if at all possible. The longer you save for retirement the bigger the benefit you will gain from the power of compounding.

  • Aim to save at least 10% of monthly income.
  • Investigate tax efficient options for saving for retirement.
  • Consider different investment options. RA’s are very popular but may not be the best choice in all instances for all individuals.
  • Do not be too afraid of taking risks, time is on your side. Many investors shy away from investing in stock markets as they are uncertain about the ups and downs markets are known for. But over the super long term it has outperformed other investment options by a wide margin.
  • Diversify with offshore market exposure for a wider range of investment opportunities than what the local market offers.

In your 30s, time to get serious

If your 20s flew past and you either did not save or saved only a little without a proper strategy in place, in your 30s it is time to step up the effort.

The aforementioned goal of saving 20% of monthly income should now be considered in all seriousness. Still too much? Maybe up the 10% of the previous decade of your life to 15%. Sounds impossible? It always does. It requires discipline and focus and a very long hard look at your budget. Now that your salary may be a bit higher, the desire to upgrade your lifestyle – like buying a new car or moving to better accommodation – may be very strong. Delay that upgrade or even resist it altogether.

  • Aim for saving 15% of monthly income.
  • If you change jobs do not cash in what you have saved towards your pension. Transfer it to the pension plan of your new employer or engage a financial advisor about alternative investment options. Your future self will thank you.
  • Understand where other savings goals – for instance for children’s education – fit into your finances.

In your 40s, watch your spending

Careers typically gain traction at this life stage, often translating into higher salaries, perhaps additional corporate benefits … and new lifestyle expenses.

  • Do not reduce saving for retirement for lifestyle expenses.
  • Keep to the 20% of monthly income savings goal.
  • Contribute all or parts of any bonuses or other windfalls (like a refund from the tax man) received to your retirement savings plan.
  • Review your current investment for retirement. Do not only focus on the total amount, investigate the returns achieved on what you have contributed, be sure to understand the fees.
  • Take the time to find out if pension rules or even legislation have changed that may require you to adjust your current investment strategy.

In your 50s, it is all about what your retirement spending will be

At this stage you may think you do not feel like retiring at 60 or 65 and will continue working beyond that. So, thinking too much about what lies ahead is not a huge priority. It should be.

The company you work for may have strict rules about retirement age. Or an unexpected event like the company asking people older than 55 to retire early for commercial reasons may occur. Get your actual retirement plan in place, beyond the contributions you are making (which must be maintained).

  • Estimate what your likely expenses in retirement will be. So many people focus on a fixed amount that they think they will need to retire comfortably. For some total savings of R2 million will be enough and for others R15 million may be too little. The focus should be on expected expenses in retirement.
  • Be sure to consider the impact of inflation on costs that are hard to reduce or avoid, for instance medical aid, housing expenses (which includes utility charges).
  • Start thinking about downsizing. Smaller car, smaller property, etc. While still working lowering expenses on these items could release more money to add to contributions to retirement funds.

In your 60s, be prepared for living longer

You may live longer than you think. Global life expectancy has increased steadily over the past 65 years. The World Economic Forum expects people in many countries to live to 80 and beyond. Which means those who stop working or earning a regular income at age 60 will have to support themselves with savings for 20 (and likely more) years. Consider that 40 years ago people celebrating their 100th birthdays made national news. The United Nations recently estimated that the number of people who will live to 100 will increase to 537 000 this year.

If you can continue working beyond 60 or 65, consider doing just that. Or start researching alternative ideas for a regular income once officially ‘retired’.

  • Do not withdraw too much from your retirement spending or you will outlive your money.
  • Keep a very close eye on expenses. The impact of inflation must always be factored in. The average inflation in many countries, SA included, has come down in recent years but the inflation of expenses like medical aid and utilities – key expenses in retirement – are well above the national averages. The problems of SA electricity provider Eskom are well publicized and the increases in the costs of electricity are likely to continue at rates above inflation for several years.
  • Make use of special offers for pensioners wherever possible. Many retailers have so-called ‘pensioners days’ where regular goods are offered to retirees at reduced prices. Many municipalities offer reduced rates for utilities and in some instances for rates and taxes for retired individuals.
  • Considering the expected longer life span, do not cash all investments out of higher risk investments like investing in the stock market. In the current low interest environment moving all money saved to cash related instruments for interest income may not be the best option. Keep some money invested in funds or shares to have access to the higher returns these investments have delivered for decades.

Planning for retirement requires careful consideration of many factors. To navigate the options and decide what will be best for your circumstances and requirements, consult a qualified, experienced advisor to guide you. Rear more about retirement planning.

Marise Smit is a financial advisor at Brenthurst Wealth Pretoria. marise@brenthurstwealth.co.za.

Many options for investing offshore

By Maria Smit, CFP®

Whether you are on the brink of retirement, have discretionary funds to spare or are just starting out, there are various ways to get offshore investment exposure. No matter the size or age of your portfolio. 

Individuals whose tax affairs are in order and have up to R10-million available to take out of the country – with SA Reserve Bank permission of course – the direct offshore investment route is par for the course. There is also a further R1m allowance for travel and other purposes that can be further mobilised. The money is usually moved from a South African bank account to a foreign bank account from where it can be deployed into a virtually unlimited choice of investment options and product providers. 

Direct exposure to offshore markets could provide a shield against global inflation. In addition to this, having an investment in a different currency and country other than where you live is a leverage against a worsening economic climate in your country of residence. South Africa is a case in point. 

There is also Capital Gains Tax savings to be had. 

This type of investment can only be accessed with a large stash of cash, and like any other business or investment venture, offshore investing may be risky. You need to take your risk profile and risk parameters into consideration for any offshore investment, just as you would for local investments.

Direct Offshore Investments suit investors who have a discretionary lump sum of R400 000 or more available, have a long term investment horizon of 7-10 years and/or are planning on emigrating in the next five years.

Non-direct offshore investment options are suitable for young investors who can start out with a monthly debit order, or retirees that have a living annuity and want some offshore exposure in their living or retirement annuity and/or individuals that have a lump sum of less than R400 000 to invest. 

Indirect offshore investing in global assets without the money physically leaving South Africa using asset swaps for example, are investments that are typically rand denominated. This means the impact of the rand exchange rate is already considered in the unit price of the fund/portfolio value.

Rand-denominated offshore equity funds or portfolios are local unit trusts that typically invest in a fund or funds that is/are managed and domiciled in another country, like feeder funds.

Such investments are administratively simple for investors and advisors and all it takes is a monthly debit order to be able to do so. 

The disadvantages of these options are that the investor’s money still has to be withdrawn in rand. It does not physically leave South Africa and is still exposed to local liquidity risks. The investor is also limited to the select few rand hedge funds available in SA.

For those starting out, getting offshore investment exposure is not out of the question. Some local unit trusts and exchange traded funds with specific mandates allow for an array of options to start dipping one’s toes in the offshore investment pool.  

If you have R1 000 or more available a month to save or invest, you can consider something like an ETF from a platform like Satrix – which recently launched a China-focused product – or options from one of Brenthurst Wealth management’s close investment associates – Sygnia – which offers several options, providing exposure to foreign assets in various forms and ways. 

Read more: https://www.bwm.co.za/offshore-investment/

Maria Smit is a financial advisor at Brenthurst Wealth Pretoria. maria@brenthurstwealth.co.za.

How to invest offshore

By Mags Heystek, CFP® Professional

A lot has been written about the importance for South African investors to diversify portfolios with increased offshore exposure. Yet many do not know where to start or what the options are. Read this for everything you need to know.

Mags.Heystek

With local markets providing historically low returns, there has been an increased interest in investing offshore. Many articles have been written over the last few years about why protecting your wealth by investing offshore is a good idea, along with the potential for greater returns on investments. The professionals have provided sufficient proof attesting to that fact.

What many reports fail to address is the practical side of investing offshore, the paperwork, the red tape and costs involved.

From a practical point of view, the first step to investing money offshore is converting your current capital from rand to US dollars. It is the preferred currency because it is still the most traded in the world and is always available. There are, also, unit trust funds priced in Sterling and Euro, for a wider offering. Forex consultants will assist in this process, but as with everything in life there are costs involved.

In terms of current regulations of the Reserve Bank investors can use their single discretionary allowance, which is commonly referred to as a travel allowance, and allows individuals to take an R1-million rand offshore without having to apply for a tax clearance certificate. Married couples can jointly take out R2 million per calendar year. This allowance applies to all South African residents over the age of 18 years and resets every calendar year.

This requires the completion of a few forms, to be approved by the Reserve Bank as they keep track of money going out of the country. A forex consultant can assist with the required paperwork. That is the easy part.

If the amounts exceed a million rand you must apply for formal tax clearance certificate. This process takes a bit longer and it is highly advised that an investor’s tax profile is up to date before doing so, to avoid raising any red flags with SARS.

There is also the R10 million foreign investment allowance which may be invested into offshore investment portfolios, property, bank accounts or other investments. The allowance has not always been this high, but on 1 April 2015, the foreign investment allowance increased from R4 million to R10 million per person per calendar year and R20 million per family unit reducing the amount of time you will have to wait for your certificate.

Should you wish to exceed this R11 million amount, you need to apply for a Letter of Compliance from SARS. Once this letter has been delivered, it must also be sent to the SARB for approval. Once approved, you will be able to externalise your funds.

In terms of the investment platforms, some do have minimum amounts, but the average amount between different platforms is between $20 000-$25000, which amounts to about +/- (R350-R450k), at the current exchange rate. Some notable offshore platforms available include (but are not limited to) Momentum Wealth International, Ninety One, and Glacier. This is probably the biggest hurdle that many investors face; “where do I invest offshore?” There are plenty of options, but it is recommended to understand each investment offering.

There are other options for people who do not meet the minimum investment criteria but still want to take their money out in hard currency. There are a few fund managers overseas that allow direct unit trust investments, for instance, Franklin Templeton, that allows for investments of as little as $5,000. It is a more direct route and limits choice as one can only select from Franklin Templeton funds, for example, but still an option. Before you explore how to move money offshore you should speak to an expert. At Brenthurst we pride ourselves with our in-house knowledge base and experience. Offshore investing has evolved from a recommendation to a requirement, as can be seen by the asset class returns in ZAR as well as USD.

Local and offshore asset classes’ returns (%)

Source: Ninety One / Morningstar

But the bottom line is even though South Africa’s exchange control regime seem cumbersome, onerous, and greatly complicating the transfer of funds abroad, is not that complicated.

And it is about to get even easier with the modernisation of the foreign exchange system and over the next 12 months, a new capital flow management system will be put in place, that was announced in the 2020 budget.

Individuals who transfer more than R10 million offshore, which is what is currently allowed under the foreign investment allowance, will be subjected to a more stringent verification process.

Such transfers will also trigger a risk management test that will include certification of tax status and the source of funds, and assurance that the individual complies with anti-money laundering and countering terror financing requirements prescribed in the Financial Intelligence Centre Act (2001). These changes will be phased in by 1 March 2021.

The concept of emigration as recognised by the SARB will be phased out and replaced by a verification process. Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests as set out in the Act. It is advisable to consult an experienced, qualified advisor for guidance. Read more about offshore investing: Offshore Investing

Mags Heystek is head of the Sandton office of Brenthurst Wealth. Contact him on mags@brenthurstwealth.co.za. 

 

Why a rainy day emergency fund is important

By Stefan Janse van Vuuren, Financial Advisor

Stefan.J.vanVuuren

A savings account for life’s unexpected emergencies or the proverbial ‘rainy day’ has long been listed by advisors as one of the cornerstones of any successful personal financial plan/strategy. An emergency fund lends investors the comfort of knowing they have a “safety cushion” in case they lose their primary source of income or have unexpected expenses. However, job losses on the scale brought about by the impact of COVID-19 has revealed how few individuals have an emergency fund and how underfunded the savings accounts are of those who do.

Why you need an emergency fund

Lockdown measures, in SA and several other countries, have left many people, families, and businesses with a reduced income and in some instances without any source of income. Leaving those who did not save for the proverbial “rainy day” exposed, regretting their lack of emergency funds as the COVID19 pandemic turned the mostly unexpected “what if” scenario into harsh reality.

Having an emergency fund is vital to any individual’s financial strategy. Apart from losing your job or main source of income, unforeseen expenses such as medical bills, vehicle and household repairs, funeral costs or even a child’s sport tour may place any household budget under pressure if there is nothing left after having paid regular expenses. Yet households living from pay cheque to pay cheque is a common reality. This may force individuals to sell other investments, take out a loan or use credit card debt to fund unexpected expenses, delaying growth on those investments for future consumption.

The required amount saved in an emergency fund differs from person to person, but most advisors have long argued that the ideal amount required to provide security against a sudden loss of income or surprise expenses should be enough to cover  3 to 6 months living expenses. Life is costly and budgets are under pressure in current times, but it is important that you start somewhere, irrespective of the size of your monthly contribution to an emergency fund.

Options for an emergency fund

The act of saving means you choose future consumption over current consumption and ideally you would like to be rewarded for showing discipline and self-control by earning interest on the money saved.

When saving for emergency fund purposes there are a few factors to consider:

Instant Access – The money needs to be kept in liquid investments that allow easy access and limited withdrawal costs.

Stability – Ideally you want to be invested in an account or product that offers stable returns with limited market volatility, as you might need to use these funds during times of market turbulence.

Inflation – As mentioned, the act of saving means deferring expenditure into the future, therefore savings need to outgrow inflation. If not, the purchasing power diminishes as time passes, which defeats the purpose of saving. The opportunity cost is not just the loss of purchasing power but the actual loss of growth if you are saving via investment options that do not offer inflation-beating returns.

What are the options?

  1. Money market linked savings account:

The returns from money market investments closely follow the repo rate. Therefore, thanks to SA’s high repo rate over the last 5 years, conventional money market accounts available at banks have delivered excellent, inflation-beating returns. The South African Reserve Bank (SARB) uses the repo rate to control the inflation rate in SA, increasing the repo rate if inflation increases and cutting the repo rate if inflation falls. The COVID19 pandemic and recent decline of the oil price has decreased SA’s inflation rate, meaning the SARB could cut the repo rate in the hope of stimulating SA’s shrinking economy. And so, it has done – cutting the repo rate by 0.5% to 3.75%, a record low (see graph), at its May meeting, bringing the total rate cuts for the year to 2.75%. Analysist forecasts predicts inflation to remain subdued, with the SARB expecting inflation to remain below 4.5%, the midpoint of its 3-6% target band, at least until 2022. With inflation under control, commentary from SARB suggests two additional 0.25% rate cuts can be expected in the two remaining quarters of 2020.

repo

Source: TRADINGECONOMICS.COM/ SARB

This does not bode well for money market investments as their returns lag the change in the repo rate. Therefore, we can expect their returns to trend downwards towards the 4% mark as it adjusts for the cut in repo rates. The last time we saw the SARB slash repo rates as aggressively as it has done recently, was during the global financial crisis (GFC) of 2008. The period, thereafter, saw the average money market investment deliver negative real returns, failing to beat inflation up until mid-2014.

The returns from Money Market investments:

MMfunds

  1. A tailormade fund for emergency savings fund:

Financial management specialists have devised different funds that can offer returns superior to the readily available off-the-shelf or retail offerings. One such fund is an Emergency Savings Fund (ESF) developed by Brenthurst Wealth, which invests in an array of flexible, multi-asset income funds, offering a savings solution that delivers stable, inflation-beating returns.

The aim of the Brenthurst ESF is to provide investors with income growth that outperform money market products with low risk of capital loss in the short term and moderate levels of capital growth in the long term.

The Brenthurst ESF aims to achieve this by investing in actively managed income funds with flexible mandates, that have access to a broad range of interest-bearing instruments (including government and corporate bonds, convertible bonds, debentures, corporate debt, cash deposits and money market instruments) as well as preference shares, equity securities, property securities, assets in liquid form and derivatives.

By diversifying across fund managers and asset classes (within the abovementioned investment universe), the Brenthurst ESF accesses additional sources of returns, whilst also diversifying risks, allowing investors to have the necessary stability and capital availability that is required of an emergency fund.

If there is one lesson that 2020 delivered, it is that the future will surprise and predicting what will happen is near impossible. That does not mean, however, that inaction is the most appropriate response. Even in times of uncertainty, planning for the future remains important.

Read more about how to approach a sound financial strategy here: Investment Planning.

Is it possible to recover from financial mistakes?

By Marise Smit CFP®.

MariseN

Financial advisors the world over have been preaching the gospel of eternal wealth creation to its followers for years. History has proved, the proverbial message that “all things come to those who wait” many times over, but despite the numbers adding up the South African people are not buying into it. There is little to no faith in foresight.

A recent Retirement Reality report released by the financial services provider 10X Investments suggests that the retirement crisis is getting worse, with even fewer people preparing for their golden years, than the same period last year. The findings were based on online surveys among 10,780 economically active South Africans with a monthly income in excess of R7,600.

It has become normal practice for local employees to cash in their retirement savings when changing jobs and buying things on credit is the purchase plan of choice. Rather than adopting a savings culture, consumers are taking on piles of debt to buy lifestyle niceties, and sometimes even acquiring everyday necessities

The situation in South Africa is rather dire, with a savings rate at almost zero. The lack of retirement planning should be a cause for concern, but it is never too late to begin turning things around.

The reality is that while not everyone has the financial means or discipline to begin saving for retirement in their 20s, the situation does increase in severity with each passing year, so the sooner you start the better.

Many people face a substantial drop in income once they retire – which is o exacerbated by factors such as longevity, inflation and medical costs. “We are living into our 80s and beyond, which means our money has to last us for 20 or more years after retirement; and at an inflation rate of 6%, the purchasing power of money will halve in 12 years’” according to research by one of the large financial services groups in SA.

Adding to this is the likelihood that medical expenses will sky-rocket in old age, with 60% or more medical costs occurring after the age of 60.

For the individuals in the older age band, your trepidation at nearing retirement age with very little saved is understandable, but the good news is that your situation isn’t hopeless.

The first thing all late bloomers need to do, is stop beating themselves up for waking up late to the financial fact. Focusing on the past is a waste of time, it won’t change your situation. The time has come to apply the lessons learnt from mistakes made in the past.

The bad news, however, is that there is no silver bullet to recover the opportunity cost of bad decisions. There is also no concrete formula to know how much each person needs to save to catch up for the future.

Obviously, the more you save the better, and the quicker you start doing it, the best. But to get a clear vision of where you are headed, you need to know what and where the goalposts are. It’s the first step to every person’s financial plan.

Advised clients can improve on their retirement income by up to 31%, according to research, compared to those who are not advised. This is because a professional will assist in determining the capital required to retirement, the progress made over time, and identify the gaps that still need to be covered.

Because of the shortened time frame, the most apt investment strategy in terms of risk would have to be discussed in detail with an advisor, who will also incorporate your unique personal circumstances.

This conversation will include the tax incentives available to you, as well as suggestions on investment schemes and portfolios.

If possible, supplement your income and use this income entirely for savings.
Continuing to work can help in other ways too. You have more years to salt away money for retirement, and your nest egg has more time to rack up investment gains and grow before you tap it.

That is the easy part. To go from saving virtually nothing to saving consistently and diligently and cutting down on some lifestyle comforts will be much harder.
It is imperative to clear debt as soon as possible, especially the high interest-bearing kind like credit cards or vehicle finance. At the same time, increase your contributions to your company pension fund and/or your retirement annuity.

You need to revisit and update your retirement plan at least once a year with your adviser to make sure that your investments are performing as expected, and that everything is on track. You also need to ensure that you keep your adviser up to date with any changes in your life – such as a change in marital status or a new job – as this will impact your retirement plan.

Contact Marise Smit at marise@brenthurstwealth.co.za. Read more about planning for retirement: Retirement Planning

 

 

 

The value of a Living Will

By Malissa Anthony, Legal, Compliance and Fiduciary

Malissa-2017

Having a Last Will and Testament is considered an important part of an overall financial plan and individuals typically invest a lot of thought and time on estate planning. Yet a Living Will is another matter entirely that not many have in place.

As with other risk planning related matters, it makes provision for a ‘what if’ situation that hopefully never transpires.

– Why is it important?

A Living Will is a directive or an advance directive which represents an individual’s wishes to refuse any medical treatment or attention in the form of being kept alive by artificial means. It guides an individual’s family members and doctors in the event that the medical condition of that individual is at a stage that makes recovery unlikely and when the individual can no longer make medical decisions. For instance, being in a vegetative state, irreversibly unconscious or terminally ill and suffering.

A Living Will can also provide for the execution of personal wishes like organ donation.

– How is it different from a Last Will and Testament?

A Last Will and Testament deals with the distribution of a person’s property and assets AFTER death, whilst a Living Will sets out the medical care preferred while the individual is still ALIVE, but unable to competently express their wishes.

– What is required for a valid Living Will?

The validity and use of a Living Will in South Africa is contentious, and whilst it is not a compulsory document, it can play a very valuable role in speaking for you when you are no longer able to.

The National Health Act affirms a person’s right to refuse treatment even if it may result in the shortening of one’s life. In addition, the National Health Amendment Bill anticipates putting an end to doctors’ responses and a family’s consent to withdraw any treatment when an existing Living Will is in place.

Individuals have the right to refuse treatment and many people believe that such directive will be honoured under ALL circumstances. However, this is impossible in the reality of medical practice, which means that a Living Will can be ignored by the family and the attending doctors if there is a slight chance for recovery. It is therefore, up to the doctors to also rely on their professional judgement whether the directive should be honoured or not.

It may arise where doctors may have a conscientious objection to withhold treatment in any circumstance, and by no means are they obliged to comply with an advance directive. It is important that they advise the patient accordingly of their views and offer to step aside or transfer treatment and management of the patient’s care to another practitioner who does not share in the same objections.

The South African Medical Association (SAMA), has stipulated that in order for a person to make such a directive, such person must be over the age of medical consent and of sound mind (“compos mentis”). This directive will remain valid even if the declarant later becomes “non compos mentis” (of unsound mind), unlike that of a Power of Attorney, which loses its authority once the principal becomes mentally incompetent.

– Why should putting a Living Will in place be considered?

1. A Living Will speaks for you when you cannot speak for yourself.
2. It spares loved ones from the anguish in making life-or-death decisions. It also eliminates any emotionally straining arguments between family members over the present situation.
3. It allows you to have your say in specific medical procedures and organ donation.
4. It assists in containing the financial costs of dying. In the instance of no reasonable prospect of recovery, life-support can be extremely expensive, which could deliver a significant financial burden on family members or reduce the value of your estate that you had bequeathed.
5. It gives you peace of mind.

– Important issues to note:

A Power of Attorney is not valid on becoming mentally incapable
Many believe that a Power of Attorney will suffice in the instance where an individual becomes mentally incapable or for example, falls into a coma following an accident. This is unfortunately not the case, as the Power of Attorney becomes invalid the moment the Principal of the Power of Attorney can no longer exercise his/her judgement.

A Power of Attorney can only be used when you are SOUND of mind, able to communicate and authorise a person to act of your behalf.

This is confirmed in the case of Pheasant v Warne 1922 AD 481 with reference to Molyneux v Natal Land Company 1905 AC 555, where the court held that a power of attorney cannot be granted by someone who, because of her mental faculties have been impaired by old age, had not been in a position to understand what the particular legal proceedings instituted against her were about.

If a Power of Attorney has been drawn up and mentally incapacity is a result, there would be the requirement that an application be brought before the court to appoint a curator bonis, which is time consuming, costly and thus cumbersome.

A Living Will is not the same as an assisted suicide/voluntary euthanasia

A Living Will should not be confused with the concept of “assisted-suicide” or condoning euthanasia, both of which are illegal in South Africa. Therefore, a Living Will cannot include any instructions or directives in respect to either instance. Whilst you can request for specific medical treatments to be withheld or withdrawn, you may not however ask your doctor to end your life.

Living Wills have become an increasingly important part of estate planning in South Africa, although creating one is completely at the discretion of the person considering the same.

It is imperative that a Living Will is reviewed regularly, and that both medical practitioners and family members have access to it. For ease, it is recommended that once drawn up a Living Will should be signed and should be kept in the safe custody of a doctor or attorney/fiduciary specialist. More details about Brenthurst Wealth’s estate planning offering here: Estate Planning

Five things you can do now to improve your money situation, and your life, in retirement

By Suzean Haumann, CFP®

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A guaranteed income for life and leaving an inheritance for loved ones are two of the most important motivators South Africans list when they reach their golden age.

This is according to Just Retirement Insight – independent research commissioned by Just – in which South Africans between the ages of 55 and 85 years in the major metropolitan areas were interviewed.

When it comes to income in retirement, 89% of survey respondents wanted a guaranteed income for life (up from 86% in Just’s 2015 survey).

The second most important aspect for 53% respondents (up from 44% in 2015) is leaving an inheritance for their children and grandchildren.

However, statistics from the Association of Savings and Investments South Africa (ASISA) show that 92% of retirees currently invest in living annuities, which do not cater for both needs as these products typically do not provide a guaranteed income.

This unfortunately means that running out of money becomes a possibility in later years and, as a result, the likelihood of being able to leave a legacy is severely reduced.
However, there are unique retirement solutions which seek to address both these needs simultaneously.

But it is not just the paperwork that has to be filed and reviewing the expected income in retirement to ensure a smooth transition. A dramatic change in lifestyle from working to not working comes as a shock to some. If you’re in the early stages of retirement and feeling somewhat lost, you’re not alone. Many retirees find the transition can be difficult.
Following these tips might help you adjust to retirement better so you can feel fulfilled and happy during this chapter of your life.

Retirees who want to retire on very little or no money are greatly benefited by learning budgeting skills. Whether retirees have only a few hundred rand or tens of thousands of rand, they should make detailed plans to allocate what cash they do have to the things that matter the most.

But prior to that it is also advisable to remain working as long as possible, retiring at 55 or 60 is simply not advisable anymore. So many people get their identities wrapped up in what they do for a living, and once that’s gone, if there’s not something else there to fill the space, that’s when depression and dissatisfaction often kick in.

People who are willing to sit down and discuss their passions and long-term post-retirement goals are the ones who will have a more satisfying, fulfilling retirement. You can’t just leave work and go figure it out.

Without the human interaction and challenges found at an office or workplace, some people suffer mentally and physically. If you’re not working, you may not be engaging in conversation with people daily or getting enough physical exercise.

It is important to take care of your health. In view of higher medical care costs and expected ailments as you get older. The healthier you are the less you need to provide for medical costs.

You must be cautious that you’re still getting out, meeting people and being social. People who are not active tend to decline rather quickly.

Retirees need to find hobbies that interest them and maybe produce goods and/or services that can be sold. Even if retirees don’t make much money from their hobbies, the little money that they do earn can be allocated toward something important.

What is going to motivate you to get out of bed and do something? For everyone it’s going to be different, but do find something that motivates you, excites you and keeps you moving forward.

Also, research and use the many benefits and promotions available to retired persons. It is a waste to miss out on many available discounts. For instance, pensioners can go to the movies for reduced ticket prices on certain days, enjoy lower prices at certain retailers, even some hairdressers and dentists have special offers for retirees.

Many banks are more generous with interest payments on certain savings plans for the older guard and additional tax allowances are available on income earned. Furthermore, some public services like bus rides are also available at reduced prices.

Financial advisors actively advocate the importance of having a financial plan and investment strategy in place while working. Once retired adapted plans and a new life strategy are as important. Want to know if your retirement plan is on track? Consult a qualified, accredited advisor. Details of our offering here: Brenthurst Wealth Retirement Planning

Offshore investing … let’s get practical

By Renee Eagar, CFP®

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With local markets providing historically low returns, there has been an increased interest in investing offshore. Many articles have been written over the last year or two about why protecting your wealth by investing offshore is a good idea, along with the potential for greater returns on investments. What many articles fail to address is the practical side of investing offshore. How does an investor go about taking money out of South Africa, and what are the investment options available? Here we unpack some of the practicalities of investing offshore.

Probably the most straightforward option is opening a bank account in a foreign country. It does not even need to be in an interest-bearing account. If, for example, you have a dollar denominated bank account and you invest the equivalent of R100 in the account when the rand is at R10 to the dollar; if the rand weakens to R12 to the dollar, your R100 investment has increased to R120 effectively. When considering opening a bank account offshore it is very important to consult with a foreign exchange expert.

There are several factors to take into consideration when opening a bank account offshore including minimum deposits, tax requirements (both in South Africa and offshore), which countries to consider and, of course, the fee structures that these accounts may incur. A foreign exchange expert will be able to assist you in navigating through the options. If you are a South African working overseas then this would be an ideal starting point for you, especially if you are being paid in a foreign currency. Just keep in mind that foreign earnings above R1 million will no longer be tax exempt for South African tax residents from next year (March 2020).

A second option is to invest directly in an investment product that is not rand denominated. These investments are typically housed offshore through offices in countries such as Mauritius or Bermuda. Brenthurst Wealth established its own fund, the Brenthurst Global Equity Fund for this purpose, but there are others to consider, from the likes of USD cash funds all the way to high risk, sector specific themes. The options offshore are endless and especially in comparison to the local JSE. This balance of investments needs to suit the investor’s risk profile and a longer-term view needs to be taken. With these investments the investment is made in a foreign currency and the investment is housed offshore, which means that there may be exchange controls to consider should the investor want to bring the money back to South Africa. These investments typically have larger minimum lump sums in dollars and are not very flexible when it comes to ongoing contributions, unless the investor can meet a high enough monthly deposit amount. In practice this option is ideal for investors who have a large lump sum that they wish to move offshore, or another option is to save a monthly amount locally then take it offshore when it meets the minimum requirements

An often-overlooked option is to buy a property in a foreign country. Property can be a volatile asset, and it is advisable to consult with experts in the property industry in the area where you wish to purchase. While there has been an increasing trend of South Africans purchasing properties in countries such as Mauritius and Malta in order to acquire residence in those countries, others are considering it purely for diversification and attractive returns. The SA property market has underperformed for several years while in countries like Portugal, Spain and other European countries investors receive good rentals and can also expect healthy gains in the capital value of the property. A local property news service recently reported that Berlin’s housing market was the fastest price growth market in the world in 2018 and that the city continues to enjoy double digit growth year-on-year. “Property prices rose by 15% in 2018,” according to the report. Before making a property purchase investors should make sure that they understand property trends prevalent in the selected region as well as any local laws relating to property ownership. For those hesitant to take the plunge due to the many unknown variables, it may be a good idea to consult with a South African company that has set up operations in other countries – like Brenthurst Wealth’s Mauritius office – for assistance. Also note, if you are still a South African tax resident, you need to be mindful of Capital Gains Tax and Estate Duty, so speaking to a person who specializes in tax and estate planning is recommended if you are looking at purchasing property offshore.

Another option is to invest in a local fund that invests in international assets. The investment is still made by the investor in rand; however, the investment is made into offshore products. These are called rand denominated offshore asset swaps funds or one can also make use of ETF’s, for example. The major benefit here is that the investor is transferring risk offshore and removing local market risk from their investment. These international funds typically have a global mandate, so speak to your financial advisor if this is something you would like to consider. This option is often not considered as many investors are under the impression that you must invest in foreign currencies in order to have offshore exposure.

Investing offshore provides investors with an opportunity to reduce their exposure to local risk and allows investors to access the vast investment opportunities available globally. We have touched on four ways in which South Africans can invest offshore, including investing in offshore investments, via local portfolios that then invest offshore, opening a bank account overseas, and purchasing property overseas. All these options have risks and require the knowledge and expertise of financial advisors with skills in foreign exchange, Capital Gains Tax, estate planning, and property. Before you explore how to move money offshore you should speak to an expert. At Brenthurst we pride ourselves with our in-house knowledge base and experience. For more about investing offshore and forex services, visit here: Brenthurst Wealth Offshore Investing