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Retirement Guide: Part 6

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Magnus de Wet, director at Vista Wealth Management
Magnus de Wet, director at Vista Wealth Management

What are the four biggest retirement savings mistakes you should avoid?

Not starting to save early enough

People often delay starting to save for retirement, because there is always something more important to do, and thinking that it’s so far in the future and they can start “next year”. Quite often next year then becomes the year after that and the year after that, and then you wake up one morning and you are 10 years away from retirement and you haven’t put away anything. The earlier you start, the less pressure there will be the closer you get to retirement. Never underestimate the power of compounding and what it can do for you. 

Not saving enough

If people do save for retirement, quite often they don’t save enough. But now I hear you asking: “How much should I save?” The first answer to this question is: “As much as you can, and from as early as you can.” As a general rule of thumb, it’s recommended that you save at least 10% to 15% of your gross income for retirement. But that is just a general guideline, you need to have a goal, and a plan that is going to help you get there. Saving for retirement is the same as training for a marathon. You need to measure your progress and success on an ongoing basis to ensure you stay on track. 

Withdrawing funds when you change jobs

You save for retirement in order to provide you with an income during retirement. The days where people stay in one job their whole lives are gone. People change jobs more often, and when doing so they don’t preserve their retirement benefits, but instead withdraw the funds and take the cash. This has the same effect as starting to save for retirement too late and the result is severely compromised benefits at retirement. 

Not using the correct retirement saving vehicles

You’re allowed to contribute as much as 27.5% (capped at R350 000 per annum) of your gross remuneration or taxable income towards pension, provident or retirement annuity funds. With these saving vehicles you save pre-tax and therefore get the benefit of compounded growth on a larger amount. Investors must also utilise their tax-free saving account (TFSA), which currently has an annual limit of R30 000 with a lifetime contribution limit of R500 000. The returns or growth you earn on your TFSA are completely tax free.

Rupert Giessing is a director at Vista Wealth Management, a representative under supervision of Accredinet Financial Solutions.

What should you ask your financial adviser? 

What are your qualifications and experience?

Investors must remember that anyone can call themselves a financial adviser. This is not to say an adviser with good qualifications and a great deal of experience will by default be a good adviser, but at least it’s a starting point. In South Africa, Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) are two highly respected qualifications. If you’re too shy to ask the adviser straight up about their qualifications or experience, you can Google them or look at their profile on LinkedIn. 

What services do you provide?

Personal finance is a wide field and over the years financial advisers inevitably start specialising. You might have a specific need, so ensure your financial adviser can service that need, or at least have access to someone who would be able to.

Are you tied to a specific product provider, or are you independent?

“Tied” advisers often benefit from large financial institutions that back their advice. They have access to qualified leads, support systems and sometimes a guaranteed salary at the end of the month. The problem with “tied” advisers is that if they move to another financial institution their clients stay behind and they need to start a relationship with a new adviser from scratch. This is not the case with independent advisers. 

How are you remunerated, and what are your fees?

Some advisers charge a percentage for assets under management whereas others make money selling specific products to you. By asking this question, not only will you understand the costs to you but you’ll also know whether the adviser has an incentive to sell you a specific product. 

Can you provide me with references?

This way you can get an independent opinion about your potential new adviser. Ask the references questions like how regularly they meet and the adviser’s response time on queries or issues in the past. 

Could I see an example of a financial plan you have prepared?

There is no set structure for financial plans. Some might be very long and detailed with charts and graphs while others could provide a snapshot plan within a few pages. The investor must decide which approach they feel more comfortable with. 

Magnus de Wet is a director at Vista Wealth Management, a representative under supervision of Accredinet Financial Solutions. 

This is part six of the cover story that originally appeared in the 10 November edition of finweek. Buy and download the magazine here.

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