“It is a big problem that people just leave their personal finances up to someone else, be that their pension fund manager or HR team,” says Asavela Gwele, Investment Consultant at 10X Investments. “Something we see often in the retirement saving industry is that people contribute to a pension fund for years and years, but never so much as look at how their investment is doing.”
Gwele concedes that for many people the problem is that they are shy, or embarrassed that they know too little about the subject.
“People are afraid they will ask the ‘wrong’ questions. But there are no wrong questions,” she says. “The worst thing you can do when you don’t have answers is not ask questions.”
“It is your money, no one cares about it more than you do,” Gwele says. “Get involved. Ask questions. Those questions can be anything from: How do I get my statement? to: What happens to my money if I pass on?"
The alternative could be a lot more awkward, she adds, pointing to a new advertisement that 10X is running that takes a humorous look at the issue.
In the interests of helping people to get started, Gwele lists a few basic questions that retirement savers could ask:
Am I on track to reach my savings goal?
Saving for retirement without having a plan in place is like getting on to a train without checking the destination, says Gwele.
Online calculators, such as the one here, will help you get started. Plug in a few basic details (your age, your income and how much you have saved) and generate a savings goal and a retirement plan.
Once you have a plan in place it is important to check that you are on track to achieving your goal, says Gwele. “Revisit that plan regularly, especially if your circumstances change. If you start a new job, or get a promotion, revisit the plan and make adjustments so that your plan keeps up with your life.”
What am I paying in fees?
Again, this is something that should be easy to understand. Paying away a high proportion of your growth in fees is a very common mistake in retirement saving, says Gwele.
Based on a comparative study by 10X Investments, the average individual retirement saver in South Africa pays around 3% in fees (including advice, administration and investment management). But there is a new breed of asset managers that charges significantly less. 10X Investments, always charges less than 1% before VAT.
Paying high fees can do more damage to your investment than you might think possible, says Gwele. Losing a chunk of your fund total to fees every year costs you a lot more than the fees you lose. It also costs you the growth on that chunk of money, and the growth on that growth over time. “This has the opposite effect of compound growth.”
She adds that understanding how much you are paying in fees should be easy.
“It can seem a little complicated when the fees and costs for various aspects of management are calculated separately, and according to different pricing formulas, say a percentage of the value of your assets for one cost and a monthly rate for another.
“But there is a way to cut through all the mystery and confusion. The equivalent annual cost (EAC) will give you a number that is simple to understand and compare across providers,” says Gwele. If you are still in doubt, ask 10X to do a free fee analysis and cost comparison for you.
How is my fund performing?
You should receive statements from your provider regularly. Don’t just put them in the trash or your ‘read another time’ folder. Take a moment to look at how you are doing. It should be simple enough to see how your investment is growing.
“If you do not understand it, ask your broker, or a representative of the fund. This is your money, you are paying someone else to manage it. They should be able to tell you how you are doing,” says Gwele.
What else am I getting for my money?
Retirement funds offer additional benefits, everything from financial planning tools to life cover, disability insurance and policies that cover the cost of the funeral of a family member. It is always good to know what you have, especially since you may be buying duplicate insurance cover.
The answers to these four questions will be a good starting point to understanding the basics of your retirement savings fund. Too many people shy away from asking the most basic questions because they are afraid, or feel awkward.
“What you really should be afraid of is waking up too late to the reality that you took the wrong train or, worse, are stuck in the ‘wrong’ retirement,” says Gwele.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP.
