The Fat Wallet Show with Kristia van Heerden

Podcast: Drawdown management

In Latest, The Fat Walletby Kristia van Heerden

FW_260819Not many of us are well-equipped to manage a large sum of money. Our monkey brains spent so much time learning how to run away from predators and exactly zero time learning about financial decision-making. We don’t blame it, of course. Compounding is lost on the dead. 

All this monkey business makes retirement a nightmare. Most of us learn to cope with money one pay cheque at a time, and even then we often do a bad job of it. Over time a monthly income starts to feel manageable. 

Once the corporate machine spits us out, often in our 60s, we are suddenly expected to understand drawdown rates and how a living annuity differs from a guaranteed annuity. We have to make sense of the tax code – a seemingly impossible task. The behavioural aspects of financial management we avoided thus far suddenly become the key to our survival. All this while we profoundly change our daily routine and often our living arrangements. 

Since managing our money in retirement or financial independence (whichever comes first) will involve the most important financial decisions of our lives, we should be preparing for those choices from the day we start saving.

This episode of The Fat Wallet Show is dedicated to that enormous amount of money we have to manage in independence. We talk drawdown rates, what happens when you become too old or too sick to make good choices, what to do when you only have a few years left to prepare and how to think about annuity options.


The bleeped version is here.


Johan

I’m nearing 65, which means need to retire now and are clueless as to where to from here.

I mostly saved and invested in single stocks. Lately, as you advocate every day, in ETFs.

But how does one do it from here? I’m comfortable with the 4% rule and relatively sure with a 5% inflation increase per year that my money will last into my 100s.

I am, however, not sure how to actually do it. I think one will sell enough equities at retirement for maybe two years’ income and stuff it in a savings account and draw monthly from there and replenish it thereafter on a yearly basis.

My concern is that at this age one tends to be out of action every now and then (e.g. in hospital with pipes and wires coming from all parts of your body) for a few weeks and then you are incapable to do or think at all. 

Technology also starts to run away from you, you are not that quick anymore to master a new mobile phone/windows/ trading platform/ etc. and you cannot hear the call centre operator at SARS/bank/etc. anymore. You get the picture?

On the other hand I have been milked by many a financial advisor in my younger days and do not trust them and wish to steer clear of them. 

Any idea how one can continue to bypass financial advisors but cater for ones diminishing abilities in this regards?


Syd

My wife and I will be getting at least 90% of our post-retirement income from a guaranteed annuity and plan to supplement this with income from investing in Income Funds. 

We bought the Income Funds with the tax-free lump sums both me and the wife could take from our retirement funds as well as excess contributions to retirement funding. Those will be invested in my wife’s name. 

Income form the Income funds are mostly interest income, which will not be enough to make her tax liable. Part of the income proceeds on a monthly basis will then be used to continue contributing to our TFSAs until they are maxed (about 80 years of age). 

In this way I am channelling money whose investment returns would have been potentially taxable into investments in our TFSA’s with zero tax implications! 


AJ and SM

I’m the unemployed female partner (61-year-old couple) with ZERO retirement savings. Hubby works in the Middle East. We’ve managed to save all the SHOCKING parent visa fees needed for a move to Aus, with no guarantee they’ll grant the visa. (Our daughter and grandkids are there … that’s the pull.)

Hubby is more or less assured of another 12 months on contract. We now have US$ X amount monthly we can do something with. What is best to do? What is the index? Where does one find a ‘fee-friendly’ broker for investing in Ireland, for example? 

Also, we have no assets, no policies, but I have just discovered that I have a retirement policy that I had forgotten about. It’s paid up and has +-R20,000 lying in a Sanlam acc till I’m 65. How I can I best utilise that money?

We have an adult autistic child that lives with us. A nightmare scenario for the day hubby doesn’t have a job anymore. We need to save intelligently for the next 12 months and we are ignorant on money matters. Totally ignorant!


Win of the week: Carl

I finally paid off my student loan!

I now have an “extra” R10 000 per month that I can either use for my vehicle debt or put into my savings.  

I already max out my TFSA and contribute to an RA.  My company provides me with a vehicle allowance each month which covers more than the monthly installment as well as insurance.  

For the age old question:  is it better to put this “extra” money into the vehicle to pay it off as soon as possible?  Or is it a better idea to put that money away? Does the fact that I get a vehicle allowance make any difference?


Deborah

I want to invest in my first TFSA ETF. I am 40 and am playing a bit of a catch-up game so I would like it to be aggressive. Please can you recommend an ETF and who to buy it through? I also see you have One Lap ETF – is that an option?


Sabata

It helps to negotiate and / or fight with your insurer.  

Dialdirect tried to increase my car & household insurance premium from R 1163 to R 1458 per month; a 25% increase.  

I thought this was rather excessive and shared this view with my insurer.  My premium will now be REDUCED to R 1099. I feel rather smug.


John-Ross

 Are there any compounding benefits to having one ETF, as opposed to 2/3 ETFs?


Gregg

You mentioned your friend that managed to feed herself and two children on R1,000 a month. I am all for cost cutting, and would like you to please ask your friend firstly, how old are her two kids, and secondly, what type of meal plan does she implement at such a low grocery bill? 

I would love to know how I can economise on food because prices keep on going up.

What are your reasons for using Easy Equities as a broker for your TFSA?  

I am also researching where to place my TFSA. I know you have also mentioned ETFSA before who also appear to have low fees. 

Can you give me some pointers here because I know you are a great one for not wanting to give any of your hard-earned cash away, especially on fees.


Rudolph

How does investing in gold, “fail” to produce “income”?


Adri

Patrick mentioned the Vanguard FTSE All-World ETF. He said that he is buying through his brokerage account. 

Is there a South African platform with US account through which you could buy this ETF?

I see that Easy equities only has the Vanguard FTSE emerging markets available. Can you suggest a platform through which one can buy the Vanguard FTSE All world that is not too expensive?

Interactivebrokers.com 

degiro.ie


Christina

I paid off the last of my debt in 2014, increased my monthly debit order to my savings account and wandered off to pay attention to things I find more interesting. 

After about four years, I realised that my “emergency fund” was getting rather bloated and I should probably start investing some of the money. I went about this in exactly the wrong way. I invested about R 400 000 through Sanlam, set up a monthly debit order and called it done.

All of this was around June of 2018. Then I started listening to your show in April this year and I realized that I had been lazy and I that I was probably paying for it. I went through all my statements. 

Not only was all the funds in my investment actively managed, I was also paying about 1.6% in fees on top of the fees for each fund. I have shut down the account and gotten my money out (minus about R9,000, which is probably a reasonable stupidity/laziness tax).

I have set up an account with a broker and invested about R50,000 of the money I got out from Sanlam (and another R150,000 from the still slightly bloated emergency fund). 

However, it looks like we might be at the top of the market and that investing the rest of the lump sum right now would be a bad idea. Part of me is saying: just put the money in the market, set up a monthly debit order and call it done. 

But I can’t help but feel I am being lazy again. Is it a better idea to actually pay attention to the market for a few months and wait for prices to drop a bit before investing (given that the S&P 500 is at record highs and everyone appears to be piling in) or is it actually okay to just buy more of my chosen ETFs and assume that things will work out more or less equal in the long run? 


Catherine

I am selling my property with the intent to rent instead

I own my property outright, which means I will be getting a huge lump sum (of about R1.6m), probably at the end of this year. 

I guess I would like to spread across my ZAR and USD accounts in global equity ETFs like MSCI World and Vanguard World. 

This is the majority of my net worth, and I’m unlikely to ever again deal with such a lump sum. What if the market crashes the day after I invest it?? 

Isn’t there generally a global crash approximately every 10 years, and wasn’t the last one 11 years ago? 

Please can Simon look in his crystal ball and tell me when the next crash will be. 


Tshedza

I have just noticed that since I decided to track my expenses, I analyse too much what I spend on and what value I get in return.

For example; the R3.50 cost of a plastic bag at Evergreen in Tshwane Market (I now request an empty box or just put everything back in the shopping trolley and pack them nicely in the car boot).

In June R600 bought me 329 kwh of prepaid electricity and this month the same amount got me 255.50 kwh. This change was brought by the start of the new financial year for municipalities and this appears to be what R600 will buy me going forward. Plus my bank charges me R1.50 to buy electricity on their app. 

All these are things I would have easily ignored during my autopilot days, but not anymore. Am I just being too analytical or am on the right track?


The Fat Wallet Show with Kristia van HeerdenThe Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to ask@justonelap.com.

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