financial planning from the cradle to the grave

Transcription

1 financial planning from the cradle to the grave Craig Torr

2 It s about your life not the money Financial planning is about creating a great life, and not a good living.

3 Stages of life The lean years: Marriage, children, house, bond Survival: Renovations, schooling, insurance Middle age: Children leaving home, surplus income Pre-retirement: Budgeting, planning investments 65+ Retirement: Monitoring investments, reaping rewards

4 How we make decisions Left brain Logic Analysis Sequencing Linear Mathematics Language Facts Think in words Words of songs Computation Right brain Creativity Imagination Intuition Non-verbal Feelings Visualisation Tune of songs Daydreaming Rhythm (beats) Holistic thinking Arts (motor skill)

5 Scenario planning for your life

6 Scenario planning for your life

7 Life s unforeseeable eventualities

8 Factors to consider when choosing a medical scheme Size Financial Stability External Factors Growth, bargaining power, consolidation Solvency, premium increases, operating results, credit rating GEMS, regulatory issues Other Wellness programmes, expense ratios, value for money, service

9 Choosing the best plan for your needs 2 questions 1. What do I need? 2. What can I afford? Hospital Chronic Medicines Day-to-day Needs

10 Understanding & protecting your assets Business assets fund lifestyle and lifetime assets

11 Understanding & protecting your assets Lifetime assets fund post retirement

12 Your business and financial plan Succession = Key person, contingent liability, business overheads Ownership = Buy & sell agreement and cover Personal Financial Plan = addressing remaining needs through personal financial plan

13 Family balance sheet Assets Liabilities Primary Residence R Home Loan R Rental Property R Home Loan R Vehicle 1 R Vehicle 1 R Vehicle 2 R Vehicle 2 R0 50% share of business R Business R Personal Loan R Retirement Annuity 1 R Retirement Annuity 2 R Total R R Net Asset Value = R

14 Family income statement (budgeting) After tax Income Husband R Wife R Rental R6 000 Total Income R Expenses Husband Wife Joint Current one-off Bond Primary Residence R Bond Rental Property R8 000 Personal Loan R4 000 Current recurring Vehicle R6 000 Future Expenditure Expenses R5 000 R7 000 R Savings R8 000 Sub-totals R R7 000 R Total Expenditure= R66 000

15 Establish financial objectives on disability Total monthly expenses Less: current once-off debt servicing costs Less: Income generated by spouse Balance = income to be protected Husband s Disability Wife s Disability R R R R R R Total: R Total: R 2 000

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17 Establish financial objectives on severe illness Minor ailment Ill-health Chronic condition Severe illness Disability Terminal illness Covered by medical aid Covered by disability

18 Planning for untimely death

19 Establish financial objectives on death Total monthly expenses Less: current once-off debt servicing costs Less: Expenses pertaining to husband/wife only Less: Income generated by wife/husband Balance = capitalised to determine life cover required Husband s Death Wife s Death R R R R R R7 000 R R Total: R Total: (R5 000)

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21 Planning for timely (foreseeable) death

22 Life s foreseeable eventualities

23 Retirement Chancellor Otto von Bismarck

24 Why do most retirees run out of money?

25 Why do most retirees run out of money? One day Alice came to a fork in the road and saw a Cheshire cat in a tree. Which road do I take? she asked. Where do you want to go? was his response. I don't know, Alice answered. Then, said the cat, it doesn't matter.

26 Why do most retirees run out of money?

27 Why do most retirees run out of money? Age 65 in 1800 Would have died 27 years ago Age 65 in 1900 Would have died 12 years ago Age 65 in % chance of living to age 97 years

28 Why do most retirees run out of money? Grandma Moses Harland Sanders John Glenn

29 Why do most retirees run out of money?

30 Traditional approach Risk Asset Allocation Return Lifestyle

31 Our approach Lifestyle Risk Return Asset Allocation

32 3 phases of retirement Active Retirement (< age 75) - Work no longer defines you - Change in careers - Trying not to kill your spouse Passive Retirement (age 75 90) - Slowing down - Involuntary loss of spouse - Reversal of family roles Frail Retirement (> age 90) - Loss of independence - Total reliance on others

33 Case Study Mr & Mrs Botha

34 Lifetime Assets Mr Botha is 60 and wishes to retire at age 62 years. Compulsory Investments: Provident Fund R Preservation Fund R Retirement Annuities R Total R Voluntary Investments: Property R Local unit trusts R Offshore R Total R

35 Lifestyle Expenses Expenses Description Frequency R Income Monthly R Vehicle upgrade Every 10 years R Vehicle upgrade Once off R Overseas vacations Annual R Local vacations Annual

36 Scenario 1: Inflation plus 1-3% strategy Assuming that Mr Botha retires at age 62 years and invests with a return of inflation plus 1-3%

37 Scenario 2: Inflation plus 1-3% strategy Assuming that Mr Botha retires at age 65 years and invests with a return of inflation plus 1-3%

38 Scenario 3: Inflation plus 3-5% strategy Assuming that Mr Botha retires at age 65 years and invests with a return of inflation plus 3-5%

39 Inflation Plus 1-3% Strategy Risk of a negative return 10.3% 1.4 % any 1-year period any 3-year period

40 Inflation Plus 1-3% Strategy Likely range of returns 60% 50% 40% 30% 20% 25.7% 21.0% 18.8% 16.7% 14.6% 13.6% 13.0% 12.7% 13.4% 10% 0% -10% -6.9% -2.1% 0.0% 2.1% 4.3% 5.2% 5.8% 6.2% 6.4% -20% -30%

41 Inflation Plus 5-7% Strategy Risk of a negative return 18% 5.7% 2% any 1-year period any 3-year period any 5-year period

42 Inflation Plus 5-7% Strategy Likely range of returns 60% 50% 40% 30% 20% 42.6% 33.8% 29.8% 26.0% 22.0% 20.2% 19.2% 18.4% 17.8% 10% 0% -10% -20% -30% -1.1% 2.8% 4.6% 5.6% 6.4% 6.6% -9.0% -5.0% -17.8%

43 USA Nasdaq Market Index 31 January September 2005 March 2000: $53 bill flows into NASDAQ (largest monthly inflow ever) July 2002: $49 bill flows out of NASDAQ

44 Case Study: Mr & Mrs Botha If Mr Botha is unhappy with his retirement plan, he has 4 options: 1. Delay retirement 2. Save more before retirement 3. Spend less during retirement 4. Take more investment risk

45 In the words of the Dalai Lama The Dalai Lama was asked what surprised him most about humanity. His answer was this: Man. Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.

46 It s about your life Financial planning is about creating a great life, and not a good living.