Connect | Issue 3 | 2021

INDIVIDUAL CONSULTING

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Connect with Alexander Forbes for insights and tips to help you make better financial decisions.

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In this issue 1

2

3

4

5

Getting real with Rita Cool

Finance MythBusters

Your ‘Life File’

Things to consider during the holiday season

Market Data / Infographic report

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Getting real with Rita Cool “A change is as good as a holiday!”

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Be conscious of what changes you make and why you are making the changes. Look at your budget and set up a plan for your current goals, perhaps to clear your debt this year or promising yourself not to live off your credit card once you’ve cleared the debt … or to increase your contributions to savings.

How many times have we heard this saying? Some changes are involuntary, and perhaps not quite what this expression had in mind. Other changes, where you consciously decide to make the change yourself, can bring about positive outcomes and welcome relief.

How will it affect your life if you don’t have debt or a credit card anymore and what will your future look like if you save more? If you have a clear picture in your mind of what you’re working towards, it will be easier to keep up the effort.

If your situation and requirements change, assess how it affects the goals you have set up. Perhaps you got married or had children or changed your career. These changes must also be taken into account on an ongoing basis.

Change is inevitable, we only need to look in the mirror to realise that it happens without us even noticing. It is the way we deal with change that not only affects our lives in general but also the way we deal with our money.

Voluntary changes

Once you’ve identified what you want to do, you can look at how you are going to make it easier to stick to your plan and trick your brain into new habits.

Covid has prompted many people to revaluate their lives and make changes if something wasn’t working for them. People changed careers, relationships and even where they stay.

Every December also brings up the discussion about New Year’s resolutions and inevitably a reminder of the resolutions you didn’t manage to keep in the last year.

How is this coming year going to be different for you? Do you want to make a difference in your life and your future?

And, what will it take to make your dreams a reality? Make it easy on yourself this year and make your goals achievable, measurable and put a date to the goal so that can’t give yourself excuses later if you’re not making the changes.

Changing behaviour would be easier if we could see the effects immediately, but very often we need to make a change that could only reap rewards after a long time – like at retirement. Instant gratification is much more pleasurable than potential hardship in the future, so it can be really hard to change a habit that will only reward you later.

Speak to someone who can help you to set up & monitor your progress and motivate you if things are not always going smoothly.

A financial adviser can be impartial and help you with technicalities to help you stay the course.

Change takes time. Common wisdom says that it takes 28 days to form a new habit, but depending on the habit it can take much longer and you might need to work on the new habit for the rest of your life. Don’t be too hard on yourself if you can’t continuously keep up with the new habit.

Don’t give up and say that it is too hard. Just acknowledge that you had a lapse and carry on again.

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Set up reminders for what you need to do and check up on your progress against shorter term goals.

Set up default actions or automated decisions so that you don’t constantly have to make decisions. For example, build in automatic contribution increases annually in your savings or make use of apps to track your spending and savings.

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Involuntary changes The reason why people don’t like sudden changes is that it brings uncertainty and possibly hardships … and people don’t like uncertainty. Even the investment markets react negatively if something changes suddenly compared to when a change is known and can be priced into the market.

Perhaps Covid has brought about sudden changes that you didn’t plan for. A death or loss of income? Changes in your relationship?

The way to reduce some of the stress and the impact of a sudden change is to have a plan for different eventualities.

Although you can’t plan for everything you should still think about what could happen.

For example, what is the plan if you or your spouse pass away?

What if you lose your job? What if you become disabled?

Sudden changes don’t always have to be bad either, for example a job promotion that increases your income.

You could consider putting a will in place to set out your wishes when you are not around anymore. Or you could make sure that you have adequate life or disability cover to protect your income. Or short-term insurance to protect your assets.

You could also start to build up a financial safety net to help if you are retrenched one day or unable to work for a while.

Get help when you need it Planning for eventualities before involuntary changes happen will prevent this type of change from derailing your life.

And remember, you don’t have to go on this financial journey alone. A good financial adviser can help you – not only with translating financial terms into something more relatable, but also in terms of taking the emotions out of your financial decisions.

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Finance

MythBusters Throughout life you’ll probably come across a few financial ideas that you assume must be correct for you because everyone is doing it. Remember that you are an individual and what is good for someone else might not be good for you. In this edition of Connect, our MythBusters are discussing the benefits of retirement annuities (RA).

Myth

Belonging to an employer-linked retirement fund is the only way to save for retirement.

Thato:

Not at all, Trevor! It is still the cheapest and easiest to save in your employer’s fund. But, if your employer doesn’t have a fund or you work for yourself, retirement annuities (RA) provide a great way to save for retirement!

Trevor:

Hey Thato! Is it true that belonging to an employer-linked retirement fund is the only way to save for retirement?

Thato:

Trevor:

Tell me more … because I’ve heard people saying that “RA season is coming”.

The tax year-end is on 28 February.

People call the time leading up to that ‘RA season’ because it’s a reminder to make contributions to an RA to get tax back for this tax year. Consistent saving and tax benefits make retirement annuities a winner!

Even if you plan to keep on working forever, there’ll come a day when you’re mentally or physically unable to.

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Thato:

Trevor:

So a retirement annuity is like a special savings pot for retirement?

Yes. You add to the pot while working by making monthly or annual contributions and use the savings in the pot to set up an income in the form of a monthly income when you stop working.

Because the investment is especially for your retirement, a retirement annuity is a long-term investment, where you can only access the funds after the age of 55.

But you don’t have to wait until you’re 55 to receive all the benefits of a retirement annuity.

Thato:

You can contribute up to 27.5% of your taxable income each year, with a maximum of R350 000 per year, and get the tax back on the contributions.

Trevor:

Besides saving for retirement, what other benefits does a retirement annuity include?

This allows you to reduce the amount of tax you pay, rewarding you today and the day you retire.

Your money is invested in a mix of assets to help it grow. And the good news is that the growth is tax-free. Fewer taxes mean better growth and, therefore, more money for you.

All your retirement annuity savings are protected from creditors and are paid directly to your beneficiaries on your death. This saves on potential estate duty and executor fees.

Trevor:

Okay, so at the end of the day, the affordability, simplicity and tax benefits of retirement annuities make them a great way to ensure your financial well-being in retirement?

Thato:

Exactly! By investing your money in a retirement annuity, you allow your money to grow, turning your small bonus into big savings over time.

Trevor: Great! I’m going to speak to a qualified financial adviser to find out how much I need to save, how much I can afford to save and what type of investment portfolio will suit me.

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Your

‘Life File’

By Christel Botha, Fiduciary Services Manager at Alexander Forbes

Natural or unexpected, your death can place a massive administrative burden on your loved ones long after you have passed if you do not have your financial affairs in order.

Having a Life File with all the necessary documentation and information needed in the event of your passing will assist your family with access to your will, living will, passwords and title deeds for example. Having all of these documents in a single file or folder allows for ease of reference and access during what is most likely an extremely emotional and stressful time for them.

In the event of an emergency or death, certain documents are crucial to include in your personal Life File, which can be kept in a safe or filed with your lawyer for safe keeping while you are alive. Everyone should

have a Life File, not only to assist in the event of your passing but also to make managing your life easier in the meantime. It is also wise to update it whenever you change or add anything or else at least annually.

A printable Life File checklist is available [here] so that you can use it as an index for your file, electronic or hardcopy. Remember that if you keep all of your files electronically that your next of kin will need access to the files so tell them where it is kept and how the information can be accessed.

While extensive, the Life File checklist is not entirely comprehensive, as no two individuals are alike or have the same policies.

As such, it’s important to start the conversation with a financial adviser or legal professional to make sure your personal Life File is complete and up to date.

Create an index of your life using our printable Life File checklist.

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Things to consider during

the holiday season 2022 is around the corner and everyone is looking forward to taking a break over December. While you’re looking forward to getting away and probably trying to squeeze in the final details for your trip, spare some time to make sure all your affairs are in order before you venture out.

Although it isn’t nice to think about it, it is possible that you could have an accident on the road and you should be prepared for such an eventuality.

■ Make sure you are adequately covered for life cover as well as disability. There is still time to get cover and you can also take out accidental life and lump-sum disability cover without doing medicals. Check the terms and conditions for any exclusions on policy pay-outs like having an accident under the influence of alcohol or drugs.

■ Check that your Life File is up to date. This is a file with all your policies and information that will assist your family in the event of your death. The file would have items like your marriage certificate, your will and any other important documents like where your bond is kept and where you have investments. Make sure someone you trust knows where the file is.

■ Check your car to make sure everything is still working, including the treads on your tires as well as your windscreen wipers. Also check that your car insurance is up to date. Save the contact details for your insurance company on your phone so that you know who to contact in the event of an emergency. Check if you have roadside assistance and how to contact them if necessary.

■ If you’re planning to stay at home and go to parties, Covid situation allowing, check if your insurance policy includes pick up services to get home after a party. If not, include these services in your festive budget.

■ Check that your will is in order and if you need one, for example if you have minor children, that you have one.

Most financial services firms or your financial adviser would be able to set up a will.

■ Have your medical aid details available in the event of an accident. Have a small card in your wallet with your personal information or at the minimum, a contact person’s details so that your guardian angel can contact them to assist. Your medical aid company and number is very helpful in determining in which hospital you end up after an accident and the information can save your life.

You can keep something similar in the car itself if your wallet and/or cellphone goes missing in the accident.

■ Make sure that your children know who to contact if something happens to you, if they are old enough.

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Understand your medical aid benefits during “open season” South Africa is entering medical aid ‘open season’, where members can change their specific option. Many medical aid members find it hard to understand their benefits and how best to use them. Terminology can be confusing and trying to compare options and schemes can be virtually impossible. Knowing more about how schemes operate could help you make an informed choice about which option is most appropriate for you and your family.

You’re already paying for advice Did you know that whether or not you use a healthcare broker to advise you on your medical aid matters, you are probably paying for one if your scheme pays broker/adviser commission?

Their fees are incorporated into most medical aid premiums and you do not get a discounted premium if you do not use a broker. It therefore makes sense to take full advantage of a healthcare broker’s advice and assistance.

A good healthcare adviser can advise you on:

a suitable benefit option offered by one of the country’s open medical schemes

healthcare insurance-type products

gap cover

Many people don’t realise what benefits they have actually bought and are horrified to realise during the year that they do not have enough cover. A good healthcare adviser will help: assess your use of medical aid benefits past and present determine your anticipated future needs

occupational health

guide you to the most appropriate option within your chosen medical scheme simplify the complicated terminology and scheme processes A healthcare adviser will guide members to make the most of the available benefits.

What are my medical plan options?

Medical schemes have a number of different options which differ according to the benefits on offer and the contribution payable.

Contributions may vary according to family size and make-up, as well as income. It is important to know if your option requires you to use certain providers, as using a doctor or provider outside the network could mean that you have to pay in for the bill. You are allowed to change your selected option once a year, usually in January.

Health cover comes at an ever-increasing cost. Review your plan every year to ensure that it is meeting your needs.

primary care

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Market

Updates

Global growth projections downwardly revised on persistent supply bottlenecks

SARB raises repo rate by 25 basis points

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Growth outlook in emerging markets and developed economies weighed by slow vaccinations

Key highlights Global financial markets record their strongest month this year

Elevated inflation across Namibia and Botswana

Load shedding a major setback to SA’s growth outlook

Read the complete commentary here.

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SA Reserve Bank raises repo rate

Medium Term Budget

to 3.75–

See highlights from the Budget speech here.

Find out more here.

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Disclaimer: Please note that while care has been taken to ensure that the information provided in this article is correct, it represents an overview of the topic under discussion and as such does not constitute advice. While Alexander Forbes has taken reasonable effort to ensure that the information contained herein is true and correct it will not be held liable in respect of any loss arising from any advice provided arising out of the contents of this circular. We suggest that you contact your Legal department before taking any decisions based on the information herein.

The following businesses are licensed financial services providers: Alexander Forbes Financial Planning Consultants (Pty) Ltd (FSP 31753 and registration number 1995/012764/07) Alexander Forbes Investments Limited (FSP711 and registration number 1997/000595/06) Credits: Alexander Forbes Communications (production) | Getty Images (imagery) I7I

22842- IC Newsletter-2021-12-09