Annuitants must

draw as little as

possible to ensure

their capital will

be sustainable

in future.

THE POWER OF INDEPENDENT ADVICE

Brenthurst Wealth Management (PTY) LTD FSP No. 7833

INVESTMENT REPORT APRIL 2019 • ISSUE 311

FOR MORE INFO CONTACT US

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Page 1 April 2019 - Issue 311

Planning how you spend your money at retirement means you’ll have more room to enjoy your golden years. Sticking to a budget will cut down on stress and help you avoid one of the biggest mistake retirees make: spending too much of their nest egg too soon. The rule of thumb of how much you need to live on in your later years is usually estimated at around 70% of your current income. But the reality is that people aren’t saving enough and they’re spending too much – all while they are living for longer and the cost of living is getting steeper. Change has become the only constant. THE 2018 SANLAM BENCHMARK SURVEY HIGHLIGHTS THE DIFFERENCES BETWEEN IDEAL SAVINGS BEHAVIOUR AND THE REALITY: • People start saving too late (28 years of age vs the suggested 23). • People save too little (the average savings rate is 7% vs the suggested

minimum of 15%). • 62% of individuals do not reinvest retirement savings at retrenchment

or job changes. • 38% don’t get retirement saving advice. • 90% do not ever relook their pension options after initially signing up. The only way pensioners will be able to escape this retirement conundrum – to make their income last – is to draft a budget in line with what they can afford. It is also important to understand where the money is coming from as well. Many retirees draw too much income from retirement savings and, given expected longer life spans and rising fixed costs like medical and housing, may run out of funds.

HAVE A BUDGET IN RETIREMENT, OR YOU’LL OUTLAST YOUR MONEY By Mags Heystek, Certified Financial Planner®, Brenthurst Wealth Management

Brenthurst Wealth Management (PTY) LTD FSP No. 7833

Page 2 April 2019 - Issue 311

LET’S LOOK AT TWO EXAMPLES: PERSON A IS RETIRING WITH A NEST EGG OF R6 MILLION, AT THE AGE OF 55.

If he/she withdraws 5% (R25 000 per month gross income before tax) and the inflation rate is 5.2%,

annual escalation is a 5.2% increase on the income, and not total income level (for example 5% will turn

into 5.26%, etc) and expected annual returns will be 6.5% (net of fees, gross return will be 8%).

The table above illustrates that this person will reach the maximum income level at age 70 (meaning they

will not be able to withdraw a higher amount). The reason for this is that an annual escalation has been im-

plemented, at 5.2%. The risk is that if inflation starts to increase this percentage will be higher. The annual

income will start to decrease, indicating that even a withdrawal rate of 5% in today’s markets is too high.

THE SAME VARIABLES APPLY TO PERSON B, HOWEVER, STARTING AT A WITHDRAWAL RATE OF 8% PER

ANNUM (PAID MONTHLY) WITH AN ANNUAL ESCALATION AT 5.2% AS WELL.

Person B is withdrawing 8% per annum, with a 5.2 % annual escalation as per above. He/she will reach the

maximum income level at age 62, roughly seven years after retirement, and their capital will start to

deplete much more rapidly. At age 79 they will be left with roughly no capital at all, and a minimal monthly

income.

Nominal terms: the value of the capital at that time

Real terms: the value of the capital taking inflation into account.

Brenthurst Wealth Management is an authorised financial services provider (Reg No: 2004/012998/07) FSP No.7833. This e-mail and any file attachments transmitted with it are intended solely for the addressee(s) and may be legally privileged and/or confidential. If you have received this e-mail in error please destroy it. If you are not the addressee you may not disclose, copy, distribute or take any action based on the contents hereof. Any unauthorised use or disclosure is prohibited and may be unlawful. The view and opinions expressed in this e-mail message may not necessarily be those of the management of Brenthurst Wealth Management (Pty) Limited.

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SPEAK TO ANY OF OUR OFFICES COUNTRYWIDE TO ASSIST WITH YOUR INVESTMENT STRATEGY

INTRODUCING: MAGS HEYSTEK CERTIFIED FINANCIAL PLANNER®

MAGS is the head of the Sandton office, and also serves as the Key Individual for Johannesburg. Mags has been in the financial services industry for over seven years and qualified as a CFP® Professional in November 2012. Mags also serves as a member and repre-sentative of the Brenthurst Wealth Investment Committee with relation to the management of the company’s White Label Funds. Mags is a CERTIFIED FINANCIAL PLANNER® professional, a member of the Finan-cial Planning Institute of SA and is fully qualified to give advice on all investment matters.

Phone: + 27 11 7998100 Email: mags@brenthurstwealth.co.za

Although there is no guarantee what the market will do and these examples are for illustrative purposes

only, the message is clear: annuitants must ensure that they are drawing as little as possible to ensure

that their capital will be sustainable in future. They must know that there is no turning back or going back

to work once a capital base has been depleted. Having your children look after you or living off state

benefits aren’t bright prospects either.

At this point of your life, it becomes imperative that individuals, together with their financial advisor, start

planning income streams at retirement, based on the assets in their possession. This is also not a once-off

exercise and individuals need to meet with their advisors regularly to review their portfolios and the general

state of their finances, which includes the appropriate budget tools.

In the interim, the fact remains that investors need to acquire a completely new mindset around all retire-

ment savings and subsequent spending; an advisor can provide guidance.

A planner will be able to project how long capital will last at retirement, based on income, expenses and

personal financial expectations and formulate an appropriate investment plan to reach the desired lifestyle

goals at retirement, without running out of capital before. Furthermore he/she will be able to continually

adjust asset allocation of investments before and after retirement, with the objective of maximising growth

and limiting loss over the long-term.

In your personal capacity, it is advisable to increase savings with immediate effect and start establishing

more responsible spending habits. The more lavish your current lifestyle, the more retirement capital will

be required to fund this in future.

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