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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:

-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?

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 !!!!!


 

Sitting on my hands here.

"I won't ask jaDEB because he might suggest putting it all into one share or onto the roulette wheel" 

Believe it or not, I would suggest if it is "3,3m" she should go and see 2 independent financial advisor, and actual pay a small fee for good advice. That is how I feel about people that is at retirement phase, I would want her to have a good, no stress years ahead.

Or of course she can buy NPN 

"I won't ask jaDEB because he might suggest putting it all into one share or onto the roulette wheel" 

Believe it or not, I would suggest if it is "3,3m" she should go and see 2 independent financial advisor, and actual pay a small fee for good advice. That is how I feel about people that is at retirement phase, I would want her to have a good, no stress years ahead.

Or of course she can buy NPN 

You know I was kidding right? I had a feeling you'd be rather prudent for someone at that stage of life, but your advice of seeing two independent advisers is an excellent one. How do you make sure they're proper advisers, and not just product salesman. The only one I know of is Warren Ingram? Perhaps his company, Galileo Capital, might be a good place to find another.

Quote from: jaDEB on February 18, 2016, 11:48:16 am

"I won't ask jaDEB because he might suggest putting it all into one share or onto the roulette wheel" 

Believe it or not, I would suggest if it is "3,3m" she should go and see 2 independent financial advisor, and actual pay a small fee for good advice. That is how I feel about people that is at retirement phase, I would want her to have a good, no stress years ahead.

Or of course she can buy NPN 

You know I was kidding right? I had a feeling you'd be rather prudent for someone at that stage of life, but your advice of seeing two independent advisers is an excellent one. How do you make sure they're proper advisers, and not just product salesman. The only one I know of is Warren Ingram? Perhaps his company, Galileo Capital, might be a good place to find another.

Once the advisor has given his whole speel, then this person needs to ask one question - would you recommend your proposals to your father/mother and cover any major shortfalls. The real question is how convinced is he/she of their own recommendations.
I like Orca are opposed to REIT's and investments where the focus is on dividend streams. This person should invest on the basis of what can she invest in to give her an income stream to meet tax, medical aid and other expenditure on a monthly basis this may require the person to sell or realise cash to meet the next 12 months needs and invest this in a 32 day account (as an example at 7.10%, with the interest component being reinvested. Thus every 32 days notice can be given for the next 32 days capital needs so that the residual capital is always attracting interest and being reinvested. The remaining funds should be invested in the market either directly into shares which show a history of reasonable growth over the long term and the portfolio should be fairly diversified so that market volatility doesn't affect a very narrow portfolio holding. On my share portfolio I get between R 70,000 to R 80,000 per annum so it is something but nothing great but I could if I was this person hive off these dividends and put them to the 32 day account, thus requiring less of a share sale annually. Also the monthly requirement in terms of expenditure will increase over time so all things may be plain sailing now and for the next 2 years but CPI med aid, taxes municipal rates and taxes all go up and many great than simple CPI
Whoever this person speaks to in terms of advisors, the advisor needs to feel this person circumstances and have an acute understanding of what is likely to happen in the short term and medium term and that the portfolio set aside for growth really needs to achieve this objective consistently

I think one of the most important aspects of this whole thread is that it can't be a theoretically exercise and one solution is found there needs to be a number of solutions put forward and the person then makes a decision with the solution that best suites them and they are comfortable with

My circumstances are probably unique to me as I get a very good pension, but then I also have funds invested in U/T's, 32 day accounts, short term immediate access cash funds, and a L/A which I would prefer not to draw against but legally I have to. but, I am sure that we have many people on this forum who have uniquely specific strategies for investing who are retired - some who may be considered comfortable and others who may not be so comfortable