| Perhaps because of all my years’ experience on this planet, but I have cartloads of stories to tell about clients’ philosophies around legacies and retirement – and yes, they run the full spectrum from… “Make sure my last cent is buried with me” to “I don’t care if I have to sacrifice my retirement, I have to leave my children a large inheritance’. From a wealth planner’s perspective, the former is far easier to plan for and navigate than the latter – but with time and planning you can have both.  The last of the boomers are now finally turning 60 this year – they were brought up by the silent generation and there are different attitudes to legacy and retirement from generation to generation. My father, who had a fabulous role model in my grandmother (a feminist before the name was invented) had a simple philosophy… He told us kids, from a young age, that he would fund our education to what ever level we wanted to achieve, but it may come at the cost of his legacy. Smart – he understood that giving his children financial freedom was going to ensure his retirement wasn’t lumbered by parasitic progeny. If you’re somewhere in those crucial ‘financial accumulation years’ between 50-65 when, hopefully, bonds, school fees and debt is either behind you or soon will be, and you can start really putting funds away for your retirement, then there is one thing you really need to know – that is your before and after retirement income statement (fancy name for a budget) going to look like.  This gives you time to rearrange your spending, which is painful at the best of times, without waiting ‘till the last minute (and, heaven forbid, make it everyone else’s problem). I have a very simple ‘Before and After Retirement’ spreadsheet that I have now added to my Redfile organisational system (still free on request). From this simple spreadsheet your financial planner will be able to project what your pathway in retirement is going to look like – and what you can do to make it look better. If you know where your income is going and that you’re going to be okay if you keep on that path, then you can start enjoying life before you get too old to really enjoy it. It doesn’t need to be an either/or equation, it shouldn’t be feast or famine. Planning is key, whether you do it yourself or get professional help.  A legacy doesn’t have to be financial. The best gift you can give any of your progeny is that of financial freedom, in my opinion without the quid pro quo of expecting them to look after you in your old age – and yes, I know that is a cultural perspective. In any ecosystem, a wealth ecosystem included, parasitology is usually destructive. Symbiosis, where all parties benefit, is a delicate balance and independence is hard – what are you going to choose? Forget those old-fashioned ‘education policies’ flogged by insurance companies, there are much better ways to save up for a child’s tertiary education. Tax Free Savings accounts are one of them. As a parent you can start these for your children, and even if you max out the R36k pa cap, you could have R500k in ten years if markets are in your favour. Remember though, you should only ever have one (and penalties for going over the cap are onerous), so if you have loose cannon grandparents, rather have them contribute to one you open. Use a low-cost platform, low fee growth focused ETFs with some offshore exposure and let time work its magic.  When it comes to retirement, the choice of which ‘compulsory annuity’ (Living, Life or Hybrid) to use has built-in legacy decisions that you need to really understand. Today, most retirees will choose a ‘Living Annuity’ for their ‘pension’ assets. This is because the retiree has more control over their income, and if invested properly and drawdown down prudently the remaining capital can be left as a legacy. (If you want to know more about these you can read more HERE or HERE you can also request to go on my database for a weekly newsletter and podcast). It’s undeniable, Boomers had it pretty good in their working years, all over the world. They could afford to buy a house in their twenties, medical costs took a far lower share of our income than it does for their children and grandchildren and education was cheaper. I am now finding that more ‘late boomers (post 1960)’ and even ‘early Gen Xers’ are having to face the prospect of working longer or seriously downsizing their retirements, and this is a trend found all over the world. Thanks to the ‘Emerging Market Risk Premium’ that increases the yield of our bonds and interest rates to encourage foreign investment, the use of a LIFE annuity is a real option for retirees who just are not going to be able to stretch their retirement savings to live day to day without potentially running out of capital.  A Life annuity is underwritten (guaranteed) by a life insurance company using government bonds, and the rates change on a weekly basis. Essentially, you buy the retirement income at that fixed ‘rate’ for the rest of your life. It’s sensible to have a say, 5%, increase annually, and if you have a spouse it should be a joint policy. This ensures that income will last the whole of your life and increase annually BUT, and it’s a big BUT, on your death (or the second of you to pass) that capital is gone (there might be a 10-year grace period). So – no legacy, but hopefully you haven’t become a financial burden on your children. This ‘no legacy’ problem has been one of the reasons life annuities have been unpopular in the last few decades, but I am increasingly using them as part of a retirement solution in those situations which were the income drawdown is just too ‘tight’ and is likely to cause long term financial. Just to highlight some of the small print. Once you take out one of these life annuities – it is effectively cast in stone. You can’t draw down more or add a new spouse. If you initially choose a Living annuity though, you can convert the capital into a Life annuity (but not visa-versa). There are some ‘hybrid’ solutions but make sure you fully understand this complex topic before signing up to one of those. Life annuities can dramatically reduce financial stress in old age, especially if the retiree is in poor health or otherwise incapacitated.  Whatever path you choose to take when it comes to leaving a legacy, have a map, a plan, and make sure the lasting legacy you leave is one of happy, stress-free sunset years. Articles and Blogs: To catch a falling knife NEW Income at retirement NEW 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bibgo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |
͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏