Month: September 2020

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The changing seasons

Isn’t it incredible to think that we are through winter and spring has arrived, the fear around winter and one’s health was quite real. With the threat of COVID all around, the slightest sniff or cough would undoubtedly get our minds thinking, could this be it? The move to level two, and the allowance for interprovincial travel has given us all the opportunity to pack a bag and escape our homes for a night or two. I managed to get the family up to Tendele in the Drakensberg for two nights, where we enjoyed a hike up the Tugela gorge. It was wonderful to escape into the mountains and enjoy what our country has to offer.

We have all gone through a massive transition over the past five months as we have all been forced to engage more with technology than ever before. It has been fascinating watching the share prices of companies like Zoom and Netflix, and how the increase in demand for these platforms has sent the shares through the roof. It is quite common to see the term FAANG (Facebook, Apple, Amazon, Netflix and Google) in the media now, almost daily the world watches as these shares continue to fly. The Dow Jones Industrial Average is an index which tracks the top 30 stocks in the US. The S&P 500, is an index which tracks the top 500 stocks in the US, both have returned around 10% this last month which makes it the best August in US markets since 1984. While this run is incredible to witness, there is an element of disbelief and concern as the world economy is probably in its darkest place since the 1930s. This is what makes investing so tricky, as you want to be part of all the action, but at the same time, don’t want to lose any money. This is why we hand this role to fund managers who make all these hard calls for us and have access to far more information than we do, allowing them to make informed decisions.

Although the Chartered offices have been open for the last two months, we have had very few staff in the office. We have decided to return to the office at the beginning of October formally, and will work on a rotational basis, with half the company in one week and the other half the following week. We will still be offering our full online service and don’t expect, or encourage our clients to come to the office. Yet, in saying that, you are most welcome to come in should you so wish. We have all the health protocols in place and will be managing the environment meticulously, ensuring that no one’s health is compromised.

Enjoy the spring weather, and hopefully, some early rains.

Warm regards,
John

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The importance of agility when it comes to your RetiremeantTM Plan

Covid has taught us many things, both personally and professionally. It has taught us how to be adaptable, it has taught us how to be flexible, and it has taught us how to be agile. According to the Oxford dictionary, the word agile means the ability to move quickly and easily and the ability to think in an intelligent way. At Chartered we swiftly learnt what it meant to be agile when we went into Lockdown, as we had to set up all our staff to work from home while enabling them to still do their jobs effectively. Our clients also had to be agile when it came to having meetings and attending events over Zoom. But, this agility has had to extend to other areas of the business as well.

Each year we meet with all of our clients to review their RetiremeantTM Plan. This is so we can make sure that their plan is still serving their lifestyle. This process requires adaptability and agility so that we can grow through the change. Covid, however, has required us to be more agile than ever before.

Take the example of the doctor who is a specialist. Covid has had a huge financial impact on his practice. He thought that the only solution was to close his practice, a thought that was extremely devastating to him, as he derives so much pleasure and purpose from his work. Closing his practice wasn’t the ideal solution, so instead his RetiremeantTM Plan was adapted, and he cut his costs of running the practice to the bare minimum. Personally, he made the decision to spend more time with his wife instead of focussing all his energy on the negatives, and stressing and discussing with everyone about how bad business is. Instead, he decided to see this period as a sabbatical, and use the time to upskill, learning new skills that may keep him more future fit. He also decided to implement a daily gratitude practice. Currently his plan has a year of no earnings, but will start again when things improve and when more people go back to seeing specialists. Yes, he may need to work a bit longer in order to prepare for his retirement adequately, but isn’t this a better alternative than experiencing so much stress that your health gets impacted?

Next was the client, who was retrenched at 60, a result of Covid. He was spending all his energy sending out his CV in the hope of finding a job. After a discussion with him, he realised that with his specialised skills, he could be involved in numerous projects at once, and have multiple income streams. The focus shifted from having a permanent, full-time job until his official retirement in three years, to planning on working for another ten years. By doing this, it would take the pressure off of having to earn a lot in a very short period. While he potentially may earn less in the short -term, the flexibility would make his work more like a “playcheque.”

It is easy to get despondent during this time, and it is difficult to think out of the box when you are faced with a crisis. Remember that we are here to assist you, so please reach out to us if your RetiremeantTM Plan needs adjusting.

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Factors to consider before cancelling your life cover

Covid-19 has forced us all into a state of uncertainty and a time of adaptation and reflection. Due to the significant economic impact, clients have been looking for ways to tighten the belt while they weather the storm. An interesting conundrum arises when it comes to life insurance, especially when you are retired and are no longer earning an income to fund the premiums. Does one continue to take money out of investments to fund life insurance premiums? Unfortunately, there is no black and white answer, but there are some factors to take into consideration.

The size of the premium relative to life cover benefit – Often with life insurance, the cover amount does not escalate at the same rate as the premium. There are cases where the premium has escalated to thousands of Rands, but the life cover value has not kept up with inflation. In these cases, the benefit has become expensive relative to the cost. However, the opposite can also be true.

Outstanding Liabilities – If you owe an amount on vehicle finance or a home loan when you retire, it is crucial to ensure that your estate can bear the costs of settling this debt, without negatively impacting your surviving dependents. It is also important to note that if a life policy was ceded to the bank to cover a mortgage, then this cession will need to be removed by the bank before any changes can be made to the policy.

Costs payable by your estate on death – Unfortunately, dying is not a cheap process. When you die, your estate becomes liable for numerous unforeseen costs (estate duty, outstanding income tax, capital gains tax on all your assets, executor fees, master’s fees, funeral costs). If you do not have sufficient cash or liquid investments in your estate, then assets may need to be sold to cover these costs.

The strength of your RetiremeantTM Plan – In very general terms, if you can afford to retire comfortably, then you likely don’t need additional life cover to pay out to your spouse. However, if there are concerns around the longevity of your planning, it may be feasible to keep life cover running (if the premium is affordable enough to do so). In some cases, premiums are just too high, and the impact of keeping the policy running does not create sufficient benefit for the surviving spouse. Because death is certain, but the timing is uncertain, it can be tricky to make this call.

Does your life policy have a surrender value? – Some policies may have a cash component available to you on cancellation. It is essential to measure this cash value relative to the life cover amount and premium before deciding to cancel. Suppose your policy does not have cash/surrender value. In that case, you need to be mentally prepared to stop a policy that you have contributed to for years and get no tangible benefit from (apart from a monthly reduction in spending).

Your life insurance can be converted to an “investment” for your children – This may seem unconventional, but if you struggle with the idea of cancelling a policy you have contributed to for the past decade or more, then why not crunch the numbers with your RetiremeantTM Specialist. If your children take over the premiums on the policy and are appointed as the beneficiaries, this can, in some cases, result in a good investment for them. This will, however, depend on the size of the premium, the value of the life cover, as well as your life expectancy and health.

Are there any other benefits on the policy? – Check if there are any dread disease or disability benefits on the policy before cancelling anything. These additional benefits may be needed depending on your personal circumstances. In some cases, it is possible to alter a policy instead of cancelling it altogether.

These are just a few considerations, and the decisions around any financial product should always be made within the greater context of your financial plan and in consultation with your RetiremeantTM Specialist. Please get in touch with your RetiremeantTM Specialist if you need any assistance in this regard.

Podcast

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The implications of signing over a Power of Attorney

Clients frequently ask us whether they should sign a Power of Attorney (“POA”). There are some very real implications to signing over a POA, so it is important to have an understanding of the legal consequences as well as the circumstances in which a POA can be used. Used in the correct way it can be a very helpful and practical document. Before signing over a POA, consider the following factors.

A POA is essentially a notice that gives a third party the permission to act on your behalf and make decisions for you. This can be for specific matters (‘special power of attorney’) or for all matters (‘general power of attorney’). Careful consideration should be given to the person you are granting a power of attorney, as you are giving them the authority to act in your stead.

The most common instance where power of attorney is signed over is with the elderly. There may come a time when a person is too frail to physically sign documents or is physically not able to visit the bank. A POA can prove very helpful in these circumstances to relieve some of the stress on the elderly and their family.

In South Africa, there has been an increase in power of attorney being signed over from people emigrating from the country. Often people find themselves in a position when they have left the country before all of their financial matters are completely finalised. In this instance, they would sign over authority to someone still in South Africa to assist with these matters without documents needing to be sent back and forth.

COVID has presented another example of where a POA can be useful. For the elderly or those with a co-morbidity who are encouraged to self-isolate, a POA allows you to delegate authority to a trusted person, meaning one can limit their contact with people outside of their home.

It is important to remember, however, that under South African law it is not possible to sign over power of attorney if someone becomes mentally incapacitated. When a person is no longer able to conduct their affairs due to mental impairment, a POA ceases to be valid. If someone acts on an invalid power of attorney, it can be considered fraud.

It would also be reckless to accept an instruction from an agent acting by virtue of a POA where one knows the POA to no longer be valid due to the person granting the POA being mentally incapacitated.

So what can one do when someone is mentally unable to deal with their own affairs, and POA is not an option? There are two options:

  • One can apply to the High Court to be appointed as the curator of the incapacitated person’s affairs.
  • One can apply to be appointed as the administrator of such person through the Mental Health Act.

A very important consideration is that when a curator or administrator is appointed for someone who is mentally incapacitated, the power conferred is absolute. This means that the person who becomes the curator has full power under the law to conduct the affairs of the incapacitated person indefinitely and as they deem fit. In contrast, a POA can be revoked or withdrawn at any point.

The above sets out the law as it currently stands in South Africa. Please contact your financial planner if you would like to discuss putting a POA in place. If you are concerned that a loved one may be showing signs of dementia, it may be time to start looking into some of the options discussed. The legal avenues available all take time to put in place, and it may become stressful when you are not able to deal with the assets of the mentally incapacitated person as the correct legal procedures are not in place.

Podcast

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