We know Mother’s Day is upon us when the supermarket shelves are crammed with boxes of chocolates and television ads are admonishing us for not being a fabulous enough sons and daughters. All pointers direct us to luxurious boxes of chocolates (on special this week) and spa treatments (half price) and a host of other nibbles and treats, which promise to fix everything but, in reality, will be forgotten before the month is out.
Bearing in mind the older generation’s penchant for meaningful gifts and products that last, Heap suggests you help your mother with something that quite possibly is already on her mind: her retirement plan.
Admittedly, money can be a difficult subject in many households and is often avoided altogether. But, Heap says, this might be a good exception to make.
“The benefits from biting the bullet and having this particular conversation are almost certainly immense.”
You may be thinking, ‘My mother has a financial advisor, she’s already sorted’.
To which Heap responds: “94% of South Africans cannot afford to retire in any comfort. This applies to many people who have been saving for years, and plenty who have the help of a financial advisor.”
“In fact,” Heap says, “many people, including those who leave their retirement plans in an advisor's hands, are in for a nasty shock”.
So, if the system is broken and the advisor isn’t working out, how can you possibly help, you might ask. Well, for one thing, it’s about understanding that the investment industry is not actually as complex as it’s made out to be.
Here is a framework for cutting through some of the confusing jargon and unbelievable choice of options to help set your mother up for a much better retirement.
“I am certain that the relief that comes from having a solid retirement plan is worth at least 100 spa vouchers,” says Heap.
1. Help your mother to evaluate her current financial situation
For many people, this is the tough part, says Heap. We’ve been conditioned to believe it is rude to ask someone how much they earn, or how much they have saved up.
If you are thinking of chickening out, bear in mind that your mom might be moving in with you if she can’t pay the rent. And, while you’re at it, you might want to have a chat with your mother-in-law too. (Don’t say we didn’t warn you).
“But don’t feel totally alone, there are tools to help you crunch the numbers,” says Heap. “The 10X retirement calculators will help you tackle the sums.”
Once you know how much your mother has saved, you need to work out whether or not this will be enough to maintain her lifestyle in retirement, and what you can do if it isn’t.
“Don’t be demotivated when you see the numbers,” says Heap. “There are probably some small adjustments your mother can make that will make a big difference.”
2. Work out how much she needs to retire with dignity
It’s important to be realistic about what sort of lifestyle your mother is accustomed to, and what she wants and expects. Will she be living on Ferrero Rochers or dry toast?
Many people are forced to downsize suddenly in retirement, says Heap, while others are using their savings to check off the items on their bucket list.
She adds that it is worth helping your mother establish how much she needs to cover her monthly expenses and start thinking about the things she wants to do. Will she able to set some money aside for travel, for example?
The 10X retirement calculators will help work out how much money she will need to preserve her lifestyle in retirement.
If your mother is still working and has some time to go before she retires, the 10X retirement calculators will allow you to work out different possible scenarios by changing inputs, such as increasing her savings rate or changing her retirement age.
If your mother is already retired, or plans to retire within a year, the living annuity calculator is an extremely useful tool to calculate how long her savings will last based on the amount of income she draws each month.
3. Make changes now to improve your mother’s retirement outcome
If your mother still has a few years to go until retirement, she could go into “super saving mode” and increase the amount she’s saving each month, says Heap. This is known as “lifestyle smoothing” and can make a huge difference to her retirement pot.
Another adjustment that will cost little or nothing is to reduce the fees she is paying on her investments. If she is paying more than 1% of her total assets in fees a year she is giving away a chunk of her pension pot, says Heap.
“Spending time doing investment comparisons or negotiating with a financial advisor over one or two percent may not seem worth it but, believe me, it can make a huge difference,” says Heap.
Shaving 1% or more off the fees your mother pays on her investments by moving to a low-cost provider such as 10X Investments (which never charges more than 1% in fees) will probably give her many years of additional income in retirement and definitely a whole lot more peace of mind.
How's that box of chocolates looking now?
