I've had a query from a member who wants to remain anonymous, and is looking for some advice. Obviously we're not financial advisers, but then again many financial advisers put clients needs after their own commission cheques. I offered to post this for the member anonymously and see if we can get some good ideas from the rest of you here.
So here are the facts:
-Female age 60 retiring end March 2016
–Healthy BUT seriously financially challenged!
-It must be kept simple – see previous comment.
-She is unlikely to ever move abroad, holiday in Botswana/Namibia would probably be it.
-R2m is in a pension fund and max withdrawal is 1/3rd balance must be reinvested in an annuity.
-R1m free to invest anywhere. But for emergencies, say R100K should be immediately accessible.
-R375K is in a deferred/preservation annuity at Allan Gray.
-Unless there was a auto facility for selling equity (ie. 2%) to top up income, that would be a non-starter.
-There is no debt to speak of.
-Intention is to put R30K in TSA.
-R1m to be done in next week and a half as we are going away until March and any tax benefits (if any) should be in place before end of tax year.
The member initially wanted to do the following:
I have suggested moving the R2mil to the Allan Gray fund on retirement. (They surely have to perform better at some stage going forward?) Take out a living annuity and splitting the investment 60/40 Stable and Balanced Funds. If at some stage in the future the performance is not meeting her needs she could convert to a life annuity with a pension, with inflationary increases, for life.
Putting the R1mil from the notice account in some sort of ETF (s) - not sure which? Maybe Property, with an overseas bias, for some sort of Rand hedge and use the income to supplement her pension drawing which I estimate will be around 8.5K per month.
Just to clarify........
-By property I meant one or two of the listed reits, not houses. Preferably “foreign/local” ones where the distribution would be considered a dividend, not interest.
-The idea of a rand hedge was partly to offset imported inflation. Also see previous comment.
-The 4% rule could be applied to her pension withdrawal, I suggested 5% to achieve her income need, assuming 10% plus return.
-My suggestion of a living annuity was because you can convert it to a life annuity at any time, but not the other way round.
So what would you advise this woman to do?
*I'm still missing a few pieces of info, such as living costs, housing situation and medical costs, so if the member would send that to me I'll update it here. Any other info you think would be worthwhile?
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