Podcast: Help me help my parents!

In Latest, The Fat Wallet by Kristia van Heerden

The financial services industry has done nobody any favours. Not only were many of our parents sold retirement products with exorbitant fees, they are also offered the same awful choices now they’ve reached retirement age. They have learned the hard way you can spend your life doing everything right and still lose because of bad products with high fees.

This week we received five different questions from listeners who are trying to help their parents navigate the terrifying world of retirement money. For many of us, this is the biggest financial decision we would ever have to make. If you’ve been told you aren’t qualified or equipped to make these decisions your whole life, odds are you’re not going to start trying at 65. 

Our parents need our help navigating this terrain. Hopefully this episode also helps us help each other.


The bleeped show is below:


Win of the week: Emma

I am a proudly SA opera singer with a penchant to be a financially stable artist. I started my finance journey properly from last year, and was educated about Just One Lap by my mother, who was your winner of the week a while back.

I wrote a blog post this month, hoping to encourage a culture of saving and financial savviness amongst my followers, and thought perhaps you might want to feature it in your podcast.


Kenya

My mom has recently left her job to take a few months off. Her pension fund (currently held with Old Mutual) needs to be transferred to a preservation fund until she retires in two years. A financial advisor offered her a once-off fee of 1.7% to give advice on which preservation fund to choose (and to help her complete the forms- which according to her are actually very simple). Initially it didn’t sound like much, but I was shocked when I calculated the rand value of this fee. The fund he’s recommending still falls within the Old Mutual stable and has these costs:  

Total investment charge: 0.63% p.a 

Fund access: 0.18% p.a 

Admin fee: 0.31% p.a 

Totalling: 1.12% p.a 

Alternatively, he has suggested a fund with Coronation with fees not dissimilar to the above. 

Is this a fair offer? Are either of you aware of a better lower- cost preservation fund that she can choose? Bearing in mind she has two years before she will be required to access it and it is required to go to a preservation fund. 


Jenna

I started listening to your show this year and have become completely addicted. I went back to your old podcasts and have listened to about 50 hours already.

My mother has never been great with money. However, she has somehow managed to pull through.

She will run out of money soon and may need to go into debt. I’d like to help in any way I can, so I’ve helped her reduce her costs and get a better overview of her finances.

She is 63 years old. She has no retirement fund or any savings aside from R100k in cash in a money market account. She has a brand new car, so her expenses shouldn’t be too high for a few years. 

She has a home loan that she can access at any time.

She has a house valued at about R2.5 – R3m, paid off. 

The house has a back section that, if she renovated it, she could possibly rent out, however this would be expensive. 

Asset-wise she seems to be in a ok position, but her expenses are more than her income and she’d like to retire soon. I don’t think that she would be able to manage a large amount of money (if she were to sell her house.) 

How can she continue generating income for the rest of her life while losing money each month? What’s the best strategy for this situation?


Brendt

I recently had a look at my parents’ financial situation. They already have a RA that has been converted to a living annuity. 

When I inquired as to the fees that are charged on the living annuity, I almost fell off my chair.

This got me thinking: we are so focussed on getting a low fee RA going that we totally forget that the RA forces you into a living annuity. When choosing to invest in a RA one must also consider the fees that will eventually be charged on the living annuity.

The current high fees on living annuities (the cheapest I could find was Sygnia at 0.86%) makes RAs less palatable.


Nicole

My mom’s money is currently with old mutual but she’s retiring at the end of July. The living annuity they suggest will cost 2.2% per year and encompasses funds like Allan gray, coronation, ninety one etc. 

I’m tempted to recommend that she rather go with 10x/etfsa or sygnia /the new retirement solution platform by Nedgroup (brand new so not a lot of info there but more choice than the other 2). With one of the first pair she just needs to choose a path and thereafter it’s very little input from her side which makes her more at ease but I’m not sure there’s enough diversification and control. With the others there might be too many options and the wrong funds chosen.

Is it sufficient to take the same approach as I would in my regular investments but lean slightly towards the conservative side? Like a world etf and then one that has more cash and bonds?


Ross 

I am 35. My dad has a farm and a will that is so out of date it’s frightening. He’s unfortunately really bad with his own finances and paperwork. I’m trying to find out what the best options are to safeguard against all the legal fees, estate duty etc etc in the event of his death and not to have to sell off pieces of the farm in order to cover all the fees and taxes involved. 

I am looking at life insurance policies but at my dad’s age (70) they are not cheap. I suppose it’s better than trying to find that liquidity out of your own pocket or selling off assets to pay all the legal fees and bullshit when the time comes.

There’s a company called Capital Legacy that my insurer put me in touch with that deal with all the above mentioned woes. They draft the will, have a legal team, executors etc and cover all the legal fees and taxes in your monthly premium. It sounds all well and good I just wanted to find out if you guys know the company at all, and how legit they are? And if you have any better suggestions? I have listened to the “what happens when I die” podcast, but living in the Corona era maybe things have changed since then?   


Richard

Now that we’ve entered unprecedented times, including the exponential use of the word ‘unprecedented’ how much of the old rules are still completely relevant.

  • Is renting still better than buying, considering interest rate cuts? 
  • Is a broad ETF still the best option? Or should we focus on post-COVID winners in tech?
  • How big should our emergency fund be, when the entire country is in a state of emergency?

Marco

I am looking to move my R.A to Outvest. 

According to my latest investment summary: My value on 1st of January 2019 was R228 797.72 and 16 months later on 1st of May 2020 is R297 692.17. In that period my administration and advice fees were R6510.21.

With my current R.A invested in the Coronation Balanced Plus A fund from June 2005 , are the fees of the fund (which is 1.25% excl VAT) included in that admin and advice fees? Or am I paying that 1.25% excl VAT on top of the R6510.21? Are there any other fees I am paying that I am missing?

The Coronation Balanced Fund appears to have done well, I think? Not really sure how to read the performance well, taking everything into account. Ie fees etc

Would you recommend I pull my chute with the above mentioned R.A? Also , Outvest have four funds that are available for their R.A

They are:

  • Coreshares OUTcautious Index Fund
  • Coreshares OUTstable Index Fund
  • Coreshares OUTmoderate Index Fund
  • Granate Money Market Fund

Can you shed any light on these? Which would you recommend? 


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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