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This feature is sponsored by PSG Wealth. Email your queries to [email protected]
DEALING WITH RETRENCHMENT
I’ve recently been retrenched and am feeling very confused as to how to tackle this setback while still sticking to my financial future plan.
Marguerite Marais, technical legal adviser at PSG Wealth, responds: Due to the emotional nature of retrenchment, it’s imperative to reassess your financial situation and take proactive steps with the help of a professional.
As a first step, it’s important to understand your retrenchment package, and create a plan how best to make it work for you. The famous saying goes: “If you fail to plan, you are planning to fail.” Review your monthly budget, make a list of your expenses and assess what you can potentially cut back on. Once you have sight of this, readjust your financial and saving goals based on what you can realistically afford, even if it is only a temporary plan. While doing so, try to maintain your emergency fund and stick to your long-term saving goals as far as possible. Make sure that you have a trusted “sounding board”, such as a financial adviser, to supply guidance and input on what your various options are.
Once you’ve reviewed the financial aspects of your affairs, the next step is to re-evaluate your skill-set and ability to find a new job.
STAYING THE COURSE IN RETIREMENT
I’m retiring soon. How can I be sure that my finances will carry me through this next chapter?
Dulcie Weyks, financial adviser at PSG Wealth, Waterkloof, responds: The most important aspect to securing a safe and happy retirement is to have a sound financial strategy in place. Considerations such as inflation, tax implications and withdrawal levels are vital when planning this chapter of your life. It is important to determine an appropriate (and sustainable) level of income, given your needs and available capital.
Inflation has the ability quickly to eat away at your savings. Your investments need exposure of growth assets (shares) to achieve inflation-beating returns, an investment strategy that seeks to balance growth potential and risk (market volatility) is ideal.
Be sure to have a suitable withdrawal strategy in place. Determine the right income level that will not deplete your capital.
It’s key to remember that retirement doesn’t automatically relieve you of tax duties, so be sure to include this when determining your required provision. If you choose to withdraw a cash lump sum from your retirement fund, the first R500 000 taken is taxed at 0%. If you want to withdraw a larger amount, it will be taxed in accordance to the SA Revenue Service’s retirement lump-sum tax table. Previous lump-sum withdrawals made at resignation or retrenchment and previous severance benefits received will be included when calculating the tax payable.
Remember, income earned from a living or guaranteed annuity is also subject to income tax.
It’s important to partner with a trusted financial adviser to ensure that your retired years are spent enjoying life, and not worrying about the cost thereof.
Remember that retirement is a journey, not a destination.
FINANCIAL PLANNING AFTER A DIVORCE
I’m in the process of a divorce and am feeling quite overwhelmed by the financial aspect of having to handle everything by myself. What can I do to make sure my future is financially safe?
Magdeleen Cornellisen, financial adviser at PSG Wealth, Pretoria, responds: Those of us who have suffered the trauma of a divorce can certainly attest to the far-reaching impact it has on one’s finances. The outcome you had planned for yourself suddenly looks very different. That’s why it’s vital for us to plan and discuss our finances during such a life change.
Your financial adviser should support you in reviewing important elements of your financial portfolio that need to be addressed, including your retirement planning, risk cover, short-term insurance, medical scheme, estate planning, as well as beneficiaries on policies and annuities.
An important aspect to assess is whether your retirement contributions are adequate in order to enable you to retire financially independent. Another key element to consider when going through this process is your will and whether it will need to be updated.
As we grow older our perspectives on what is important will change. Talk to your financial adviser about your goals, particularly if they’re not what they used to be.
WHEN TO CHANGE YOUR PORTFOLIO
I am a novice investor who recently started investing in unit trusts and exchange-traded funds (ETFs). I’m finding it very challenging to stick to my strategy in the current market environment. How do I know when to make changes to my investment portfolio?
Anet Ahern, chief executive of PSG Asset Management, responds: Investors often do the most damage to their long-term wealth when they allow market volatility to derail their investment plans. As investment professionals, we have seen it all and understand that, most often, investors struggle to remain emotionally detached from their investments.
Markets often produce contrary signals. No market recovery or trend ever moves smoothly in only one direction, and although the long-term trend in the stock market is generally up, there are many corrections, dips and periods of sideways movement along the way.
This is exactly why the ideal portfolio should be able to withstand a multitude of conditions. It also helps to have a “sounding board” (in the form of a financial adviser) that challenges you in a rational way and helps youto remain focused on the longer-term picture, even in the midst of market volatility.
BEWARE THE PERILS OF BEING UNDERINSURED
I’m thinking of changing my insurer because at my last claim I was only paid out a portion of my claim value. How common is this among insurers and why does it happen if I pay my premium in full every month?
Luzanne Wait, insurance adviser at PSG Jeffreys Bay, responds: The ultimate goal of short-term insurance is to restore you to the same financial position you were in before the incident occurred. However, this is dependent on the level of insurance that you have insured your assets for.
Most assets are insured on the basis of new-for-old – this means that you should be able to replace old items with new ones after a claim. If you are underinsured – that is, you have not insured your assets/belongings for the correct replacement value – you will be paid out only a proportional amount at claims stage, meaning that you might not be able to replace a lost item with its new equivalent.
When the value of buildings are calculated, provision must be made for additional costs, such as the architect fees, demolition and clearing, and municipal costs, associated with repairing the building. Some insurers include additional amounts for these costs, so it’s best to talk to your adviser to find out what your policy covers.