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RETRENCHMENT can make the best-laid financial schemes go awry. How can you chart a new course?
A Fin24.com user writes:
My husband (54) and I (50) have been working full-time for different companies for the last 15 years.
We have decent employer pension schemes plus a separate one taken out in 1995 which we thought paid out when my husband turned 65 (guaranteed minimum of R2.5m) in 2021.
We thought we were okay for retirement.
However, my husband was retrenched at the beginning of this year and, while looking for a job, has been trying to start his own business (not easy at the moment!).
We have had to live on his pension payout while paying off some debt and covering general living expenses. I have now discovered that the additional pension only pays out in 2025.
If my husband stops working at 65 and I retire at 60, we will have to pay monthly premiums on the additional pension – out of my pension payout - for five years. We will not be able to afford it.
What can we do? Can we change the policy to pay out earlier by paying higher premiums now? Should we cash in now, and use the money – plus the R3 400 we are currently investing each month – and buy a house as an investment?
Or should we cash in the policy, leave it for 10 years and use the R3 400 per month to pay off our own bond faster?
Jason Garner, acsis financial planning coach, responds:
How often we have a great financial plan in place with our lives all mapped out for us - when something comes along and changes the universe we live in.
Suddenly, all the decisions we made just a few years ago don't make sense and all the goals and dreams we had fly straight out of the window. The truth is we cannot plan for every eventuality, and even though we need to have a good plan in place, the fact is our circumstances are almost guaranteed to change.
So what do we do when life happens and our plan becomes somewhat irrelevant?
The first thing to do is take a deep breath and realise that this type of scenario is normal and not the end of the world.
The second thing to be aware of is the emotional response we have when these events happen, and to take a step back from the emotions before we make any knee-jerk decisions that could end up being the wrong ones.
Now that the dust is settled somewhat, it might be worthwhile to reassess your financial position as it stands with the changes.
What are your current immediate needs, and how are you going to fulfil these needs going forward?
Once you have a better picture of your current reality, you need to reassess what you want to achieve and whether you need to adjust your goals according to the new situation.
When this is done, you need to look at the provisions you made and assess whether they are still relevant.
This is certainly where a qualified financial planner would be able to add significant value, and where it is suggested that the detail of the relevant pension funds, provident funds and retirement funds be assessed properly to ensure that they remain relevant and applicable to your new circumstances.
While many products are fairly flexible when it comes to contributions, make sure of the detail before making any decisions to terminate or cash in as this often results in penalties and fees.
In terms of outright termination and reinvesting the existing investment, it may or may not be better to cancel and reinvest if you are able to achieve better returns over the period in the new proposed investment.
The only way to determine this will be to look at the details and rules that the current investment has in relation to its termination.
It is therefore suggested that you engage with a professional, who can do the calculation specific to your needs to help you make the most informed decision possible.
What is certainly critical is not so much that changes need to be made to the original plan and investments, but rather that you make the necessary adjustments to your existing plan as soon as possible to accommodate these changes and give yourselves the most time available to recover your financial security.
- Fin24
A Fin24.com user writes:
My husband (54) and I (50) have been working full-time for different companies for the last 15 years.
We have decent employer pension schemes plus a separate one taken out in 1995 which we thought paid out when my husband turned 65 (guaranteed minimum of R2.5m) in 2021.
We thought we were okay for retirement.
However, my husband was retrenched at the beginning of this year and, while looking for a job, has been trying to start his own business (not easy at the moment!).
We have had to live on his pension payout while paying off some debt and covering general living expenses. I have now discovered that the additional pension only pays out in 2025.
If my husband stops working at 65 and I retire at 60, we will have to pay monthly premiums on the additional pension – out of my pension payout - for five years. We will not be able to afford it.
What can we do? Can we change the policy to pay out earlier by paying higher premiums now? Should we cash in now, and use the money – plus the R3 400 we are currently investing each month – and buy a house as an investment?
Or should we cash in the policy, leave it for 10 years and use the R3 400 per month to pay off our own bond faster?
Jason Garner, acsis financial planning coach, responds:
How often we have a great financial plan in place with our lives all mapped out for us - when something comes along and changes the universe we live in.
Suddenly, all the decisions we made just a few years ago don't make sense and all the goals and dreams we had fly straight out of the window. The truth is we cannot plan for every eventuality, and even though we need to have a good plan in place, the fact is our circumstances are almost guaranteed to change.
So what do we do when life happens and our plan becomes somewhat irrelevant?
The first thing to do is take a deep breath and realise that this type of scenario is normal and not the end of the world.
The second thing to be aware of is the emotional response we have when these events happen, and to take a step back from the emotions before we make any knee-jerk decisions that could end up being the wrong ones.
Now that the dust is settled somewhat, it might be worthwhile to reassess your financial position as it stands with the changes.
What are your current immediate needs, and how are you going to fulfil these needs going forward?
Once you have a better picture of your current reality, you need to reassess what you want to achieve and whether you need to adjust your goals according to the new situation.
When this is done, you need to look at the provisions you made and assess whether they are still relevant.
This is certainly where a qualified financial planner would be able to add significant value, and where it is suggested that the detail of the relevant pension funds, provident funds and retirement funds be assessed properly to ensure that they remain relevant and applicable to your new circumstances.
While many products are fairly flexible when it comes to contributions, make sure of the detail before making any decisions to terminate or cash in as this often results in penalties and fees.
In terms of outright termination and reinvesting the existing investment, it may or may not be better to cancel and reinvest if you are able to achieve better returns over the period in the new proposed investment.
The only way to determine this will be to look at the details and rules that the current investment has in relation to its termination.
It is therefore suggested that you engage with a professional, who can do the calculation specific to your needs to help you make the most informed decision possible.
What is certainly critical is not so much that changes need to be made to the original plan and investments, but rather that you make the necessary adjustments to your existing plan as soon as possible to accommodate these changes and give yourselves the most time available to recover your financial security.
- Fin24
