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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:

--- Quote ----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.

--- End quote ---

The member initially wanted to do the following:

--- Quote ---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.

--- End quote ---

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?

Am I correct in saying it is R2+R1+R0.375 = R3.375 Million

I am not a great believer in commuting any of one's pension but rather leaving the entire amount in the pension. What is not clear is whether this is a defined pension through her company - if so needs to assess what happens in the longer term as in these pensions the company has to make up any shortfalls.
By investing other proceeds into shares or other forms of investment one can get quarterly dividends/interest on EFT and presumably REIT whereas shares will only pay out once ever 6 months if they declare dividends. No sure what this person lives on i.e. income and expenditure but they need to do a what if analysis based on this data as by and large that will determine what type of investment instruments they can invest in.
Also this person will become a provisional tax payer and may have to do twice yearly returns to SARS. If the person can draw down less than 4% on a Living Annuity so much the better - one can always increment on an annual basis in the future but this is on the proviso that the person can live on their income that they are likely to have to manage on. Also maybe shelve the idea of holiday until matters have stabalised and they get a clear picture of their financial position or disposition

The yields on the smaller cap REITS are really good. Dividing 1 mill in Tex, TWR and AWA will give you around R8300 p/m. Two of them TEX and TWR also have decent oversea's exposure.

How predictable am I !!!!!



--- Quote from: Mr_Dividend on February 10, 2016, 03:27:14 pm ---The yields on the smaller cap REITS are really good. Dividing 1 mill in Tex, TWR and AWA will give you around R8300 p/m. Two of them TEX and TWR also have decent oversea's exposure.

How predictable am I !!!!!


--- End quote ---
Sitting on my hands here.


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