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The “do it yourself” retirement plan - Beat the market and save R1,198,087 in fees

by , 24 May 2016
The “do it yourself” retirement plan - Beat the market and save R1,198,087 in fees
For decades, retirement investors handed over control of their finances to someone else to squeeze as much as they can out of their retirement annuities (RA). If you're doing that, then you know it means accepting mediocre returns and paying high management fees.

But there's a little-known ‘new generation' RA that lets you customise your investments. In fact, you now have full control over your investments and savings and you don't have to pay around 3% in management fees every year...
By managing your own RA, you can bring your costs down to about 1% a year. Now, I know saving 2% doesn't seem like a massive difference, but when you compound this over 20 years, the difference becomes massive.
 

Just look at how much you can save by planning your own retirement


Let's say you've already invested R250,000 and get an average market return of 15% a year. If you didn't contribute another cent to this fund, and you only paid 1% in fees each year, your money would grow to R3,013,923 in 20 years. But if you up those annual costs to just 3% each year, your money would've only grown to R1,815,836.
 
That means, by managing your own RA you can save a whopping R1,198,087! 
 
I want you to understand that running your own retirement fund isn't something you should go into halfheartedly. There's a lot of money at stake here and your future comfort to bear in mind.
 

That why, I'm going to show you every step you need to manage your own RA successfully - From setting it up to weighting your portfolio as an accelerated growth fund with a medium risk level.


Step 1: Find a retirement wealth manager who offers you the flexibility you need

 
Not all wealth managers will allow you to select your own shares for your DIY retirement fund. You need to clarify this before you do anything.
 
So, the first step is to contact your wealth manager. Tell him you want to invest in an innovative RA called a wrapper fund or ‘new generation’ RA from a Linked Investment Service Provider (LISP).
 
If you’re happy with the flexibility your wealth manager offers you, go ahead and tell him you want to set up a RA inside one of their Regulation 28 compliant Wrappers.
 
For some of the most flexible wrapper funds, consider Glacier by Sanlam and Momentum.
 

Step 2: Make sure your wealth manager understands your needs

 
Once you’ve found a wealth manager you like, he’ll ask you to do a needs analysis questionnaire. This helps him understand your financial needs and goals. It will help him to confirm that you’re making the best, well-informed decisions when it comes to reaching your retirement goals.
 

Step 3: It takes money to make money – R250,000 to be exact

 
You can only open up a ‘Personal Share Portfolio’ in a RA if you have the minimum capital balance of R250,000. This can be in cash or in existing share holdings. But if you have your holdings in shares, you’ll sell these as you transfer ownership to the new wrapper fund like Momentum or Glacier.
 
Important Note: When you sell these shares; you may trigger a taxable activity. Any gains you’ve made may become liable for capital gains tax.
 

Step 4: Get the right Regulation 28 approved weighting to suit your needs

 
Once you’re happy with your wealth manager, make sure he understands your needs and you have put up the capital to get started, you need to select the weightings in your portfolio.
 
This means you must choose how much of the different asset classes you want to hold in your portfolio. If you’re a more aggressive investor, you’ll want to hold more equities. A more conservative investor may choose to hold more bonds.
 
Remember, your retirement investment portfolio must comply with Regulation 28. This is a set of guidelines which determine how much of your retirement savings can be invested into any particular asset type.
 
If this sounds daunting, don’t stress! Your broker can help you select the weighting best suited to your needs.



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