IC Connect Newsletter Issue 1 2022

INDIVIDUAL CONSULTING

NN CON NECT I SS U E 1 | 2 0 2 2

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

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In this issue 1

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Getting real with Rita Cool

Finance MythBusters

Future-proof your retirement

Things to consider during the April holidays

Market Data / Infographic report

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Getting real with Rita Cool What does success mean to you?

Everyone wants to be successful in life. The need for success is ingrained in our DNA. The fastest, bravest or smartest hunters stayed alive, ate better and provided more for their families. These days success is mostly associated with wealth, status or power instead of physical prowess.

How do you measure success?

Competing in the Olympics is a great example of being successful. Working hard for years, eating right and honing your body and mind can culminate in a medal on a podium.

Success is easily determined if there is such a tangible goal to aim towards. But what does success mean to the average person? You need to set specific goals for yourself so that you can measure your progress against that. For example you want to retire early with a specific income. Or you want to pay off your bond before a specific age.

Symbols of success Be wary of outwards symbols of success as they are not always a true reflection of what is happening. Driving a big car or having a big house might imply that someone is successful, but the car might be financed and the house standing empty, without furniture or electricity. Photos on social media showing wonderful holidays and events can also be staged and edited to only show what the person wants to show and these are also not a guarantee of actual success.

R Failure vs success Can failure still be success? Most Olympic athletes won’t win medals but by merely getting to the event it already shows they are the best in their fields. Some were very happy to achieve a personal career best even though they didn’t win.

Money and status shouldn’t be the only measure of success but you need to choose the right measure for yourself. You might be perfectly happy with a less stressful job and lower income, instead of a high salary with very little time left for your family. Or you could consider yourself successful if you don’t lose capital when the markets go down. Or your measure of success could be owning a second property. None of these measures are wrong or right, they just have to be right for you.

Chasing performance We often measure our success against other people and our herd mentality makes us want to follow their successes.

In the financial industry, people often switch portfolios to the highest performing portfolio/ portfolio manager/asset class of the previous year. If cash gave the best return the previous year, more money goes into cash the next year. If shares do badly, money flows out of the share market. Past performance is no guarantee of future performance but the trend continues as people want to be part of that success.

One of the biggest reasons why people’s fund returns are not in line with the published fund returns is because of the constant switching of portfolios, trying to follow success.

Buying into the market when the share cost is high and selling at a lower point when that market goes down. It is ironic that people who don’t chase other people’s success are often more successful, as they stay with their own strategies over a long period and they don’t try to time the markets.

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Long-term

Don’t just focus on short-term losses, look at how the positive periods compound over time.

It is often difficult to know if you’ve made successful choices, as it can take a very long time to see the results. You’ll only know if you have been successful with your retirement planning after decades have passed.

At the end of the day, if you want to be successful, you need to set your own goals and timeframes. Don’t get distracted by people who boast about their successes around the braai or on a staged social media post. You don’t know the details how they managed to get to that point and people never brag about their losses, they will only ever boast about their successes.

It is difficult to stay motivated if you don’t know whether or not you are saving successfully. For this reason, you should measure your progress against interim goals, just like Olympians are measured during an event.

Although interim measures are important, they are not the only things you should focus on. One negative statement does not mean that you won’t achieve your goals. Look at the big, long-term picture as well.

Speak to a financial adviser about what success means to you so that you can design the best solution for you.

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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 Finance Myth Busters are discussing what to expect and what steps you need to take, if you’re the beneficiary on a retirement fund or risk product.

Myth

Beneficiaries on death claims don’t need to do anything to get the money.

Trevor:

Hey Thato. My aunt died recently and I have been named as a beneficiary in her estate. She had several different benefits, and I don’t know where to start with the paperwork. Will everything just be taken care of, or do I need to make decisions about how the benefits will be paid?

Thato:

I’m sorry to hear of your loss, Trevor. If several different benefits have been left to you, there may be different choices that you need to make. Don’t assume that you won’t have to do anything to get your inheritance.

Thato:

Trevor:

So what are my options, as someone who stands to inherit?.

Well, if your aunt was a member on a retirement fund (which includes a Pension or Provident fund, preservation fund or Retirement Annuity) you could be listed as a beneficiary on their nomination form

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Thato:

Trevor:

But the nomination of beneficiaries form is not a will, right?

That’s correct. These funds are governed by the Pensions Funds Act and the Trustees will make the final decision of who gets the benefit in terms of Section 37C of the Act. If the fund was set up through an employer you have to contact the employer, to advise them of the deceased’s death. If you are the main contact, you’ll need to get the death certificate so that you can send it to the relevant places to confirm the death.

Thato:

Trevor:

What other information will the employer need?

The employer would require a questionnaire to be completed by everyone who thinks they’re beneficiaries so that this information can be used by the Trustees to make their distribution decision. As some beneficiaries may only come forward after a long time, legislation allows Trustees up to 12 months to make their decision. Not all decisions take that long, it will depend on the situation. If you were dependent on your aunt financially, and if the distribution is taking a long time, you can approach the Trustees for an advance until the distribution is finalised.

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Trevor:

How does tax work?

Thato:

If you’ve been allocated a portion of a retirement benefit, you can take the money in cash, after tax.

Alternatively, you can use the allocation to set up a monthly income – for example through a guaranteed annuity or a Living Annuity. The lump sum used to set up the income is not taxed, but the income received going forward is subject to income tax.

The cash lump sums taken by all the beneficiaries are taxed in the hand of the deceased and all the beneficiaries share the effective tax rate equally. Benefits allocated to children will be taxed and the after tax amount placed in either a Beneficiary fund or a Trust, depending on the Trustees’ decision. These would provide a monthly amount to look after the children’s needs and pay out the rest of the lump sum when they reach 18 or the date chosen for the Trust to be dissolved. .

Thato:

Trevor:

What about insurance policies?

If you’re the beneficiary on a life policy, the lump sum will be paid to you without having to go through the executor.

You can approach the insurance company to complete the forms to claim the benefit. There is no waiting period on this. Although there is no executor’s fee payable on this amount, the executor could request estate duty from you.

This is because insurance benefits are deemed to be assets in the estate and are therefore subject to estate duty.

ALEXANDER FORBES

Future-proof

your retirement There are many things that you need to take into account when approaching retirement, including settling debt and calculating how much capital you will need to provide an income. When you do your retirement planning, consider budgeting some of your retirement lump-sum cash for technology so that you can continue to stay connected electronically after retirement. This includes having the right hardware and data in place on an ongoing basis, and allowing for upgrading in the future as technology improves.

Covid has changed the way companies communicate with their clients. If you are not keeping up technologically, it is going to become increasingly difficult to connect to your bank as well as your retirement investments. This has become even more important as more Post Offices close and paper documentation is replaced by digital information.

Technology not only helps at retirement, but also when you’re building up your retirement fund savings. It can help to keep track of spending on-the-go as well giving access to information on options and potential cost savings through instant comparisons.

Although it is not yet possible to track all the nuances, having access to personalised advice can make a big difference. Consumers have much more information available to reach retirement targets and can’t plead ignorance or a lack of information anymore. The good news is that you definitely don’t have to do it alone. A financial adviser can help you by providing the latest information, relevant to your situation.

What are the technology that you should consider for retirement?

Email You should have a personal email address. If you only have a company one, start changing your subscriptions and login details as soon as possible so that no private mails go to your work email address when you retire.

Smartphone If you don’t want to pay for a desktop or laptop, a smartphone will be essential. It will provide access to electronic statements and email as well as enable you to transact with your bank. You can even set up additional security measures like facial recognition and two-factor authentication to protect your funds. A smartphone will also allow you to access chat apps so you can keep in contact with family and friends and provide entertainment.

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Laptop/ Desktop computer Some people prefer to make use of a laptop or PC instead of a smartphone to communicate. You could also use this to potentially continue to earn income in your own capacity, with office programmes like MS Office.

Data connection You will need data to access the internet. This can be set up as a fibre connection if it is available in your area, or through your phone system. Shop around for a reliable provider and make sure you get a decent speed. If cost is an issue for data connection, there are public spaces where you can get free Wi-Fi. It is important, however, never to do your banking in a public space as the networks are not secured so your banking information could be intercepted.

Printer/ scanner Whether this is a crucial item to have after retirement will depend on your personal requiements. It is possible that you don’t need to print forms anymore, as you can sign them electronically. You could also opt to print what you need at a printing shop.

What else can make your life easier?

Banking app If set up correctly, you can pay accounts from your phone and keep track of your income and expenses. You can also set up notifications to know when transactions happen on your account. Check your security settings and make sure your payment limits are realistic so that if someone accesses your account or a credit card they can’t access all your funds.

Password app With apps like LastPass, you can keep all your passwords secure in one place and provide a specific person with access to your passwords in the event of your death.

Electronic signature You can set up a photo of your signature on Adobe and use this on electronic documents for a lot of service providers.

Budgeting app There are a number of apps available to help you create a budget and keep track of your spending.

Security & privacy Be aware of your privacy settings and check who could possibly be able to access your information.

Don’t click on any unsolicited SMS messages or emails you receive. These could be messages aimed at getting personal information from you in order to scam you (‘phishing’).

Always protect your PINs and passwords and don’t provide them to anyone electronically or telephonically, even if you think the person is from a bank.

Don’t click on links that offer something for ‘free’ initially, as you could be unwittingly subscribing to a service that you pay for on an ongoing basis at a cost. This includes access to daily games and cell phone ringtones – these costs can add up very quickly.

Technology has increased the speed and efficiency with which information can be provided and the right technology can make your retirement much more pleasant administratively. Take this into account when planning for your retirement. Speak to your financial adviser to find out how they will communicate with you post-retirement so that you understand what you may need to set up.

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Things to consider during

the April holidays

Easter is around the corner and everyone is looking forward to taking a break in April. If you’re planning to travel over the upcoming holidays, spare some time to make sure all your affairs are in order before you go away.

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.

Click here to access your life file

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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.

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 mobile phone 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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Market

Updates Geopolitical tensions intensify as Russia launches a military operation in Ukraine.

South Africa’s 2022 Budget pledges to stay on fiscal consolidation path but there are risks.

Global financial markets weaken due to Russia/ Ukraine situation

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SA Producer price inflation eased to 10.1% y/y in January 2022 Gold increases as investors favour safehaven assets

Read the complete commentary here.

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

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