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The one question you need to ask yourself with 12 years to retirement

by , 20 October 2014

I recently sat down with a family friend, W, that's nearing retirement. He has 12 years to go.
W will pay off his house by the end of this year.

Both his and his wife's cars are paid off.

But W doesn't have ANY provision made for retirement.

As we sat and discussed his options I realised W had to ask himself ONE question before we could continue - and this question would turn out to a R170,228 difference in his retirement plan at the end of the day…

If you're younger than W, say you have 20 years or 25 years left to retirement this question becomes even more relevant to you - so make sure you read on!

What you need to ask yourself TODAY if you plan to retire comfortably

“Why can’t I do this myself?”

Why can’t you run your own retirement annuity? Why do you need the ‘advice’ of a financial planner?

Now I’m not bashing on financial advisors here. But how many of them add value?

Why, just the other day I read an article by a Certified Financial Planner (CFP) claiming that him putting his clients into a fund that held African Bank shares was ‘one of those things’. And it can’t be expected of him to know what shares are in the funds his clients are invested in.

Fine. But then it can’t be expected of you to pay him a hefty 1% advisory fee. Because let’s face it other than setting up the RA and sending you a quarterly performance report the advisor doesn’t do much else...

So, coming back to my question, “Why can’t I do this myself?”, here’s what I showed W:

In W’s case he was going to save R7,500 a month into his RA as soon as his house is paid off.

My guess would be that his advisor would put the money into a typical balanced fund generating around 12% growth a year.
But the advisor would take 1% commission on this every year.

What are the implications of that?

Well, compared to a DIY RA where there are no commissions to an advisor it’s massive.

Over twelve years, at 12% growth and R7,500 invested a month you’d amass R2,416,891.

If you keep all these variables the same, you just add in a 1% advisory fee you’re looking at R2,246,663 – R170,228 less…

If you invested the money over a 20-year period the difference would be even more significant at R941,811.

Now I’d like to see a financial advisor add R941,811 value to my portfolio…

What you need to know to run your own RA

So you have 20 years left and want to save nearly a million rand more? Or like W, you have twelve years left – and want to save nearly R200,000 more for your retirement?

Here’s what you need to know:

Three things you need to know to set up your own retirement portfolio:

  • It’s not as hard as your advisor wants you to think
Allan Gray and 10x investments are currently offering DIY Retirement Annuities. You can go online and start your own RA in minutes.

Allan Gray’s platform is easy and intuitive. It gives you the option to save your cash into an RA – with a minimum of R500 a month. You can pick the funds you want to invest in and set up your debit order online. And voila! That’s it. In five minutes you can have an RA set up without any additional advisory fees going to a financial advisor.

  • The experts say pick a fund and stick to it
The fact is, the retirement fund industry has become super competitive. Most ‘balanced’ funds are very similar and provide very similar returns. At the end of the day they tend to invest in the same investments any way. So there’s really no reason you need to jump from fund to fund every year. All you need to do is pick a reputable balanced fund to put your retirement savings into and stick to it – isn’t that what most experts advise anyways?

I like both the Coronation Balanced Plus Fund and Allan Gray Balanced Fund. Both are regulation 28 compliant and both are available through the Allan Gray RA.

  • Regulation 28? What’s that?
Regulation 28 regulates retirement funds. Basically it says you can’t put more than 75% of your money in shares, 25% in property, and 25% offshore.

Fund factsheets usually give you this information. But as a rule balanced funds are set up to be regulation 28 compliant from the beginning. I’ve found even picking a combination of bond funds, property funds and top performing equity funds might beat a good balanced fund by a slight bit in the long run – but it’s usually not by much.

So, if you’re sitting there, reading this and you know you haven’t made sufficient provision for your retirement I suggest you start right now. But more importantly ask yourself “Why can’t I do this myself?”.

Here’s to unleashing real value

Francois Joubert

The one question you need to ask yourself with 12 years to retirement
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