OPINION: How to help your folks talk about their retirement plan
For some people, helping ageing parents, or grandparents for that matter, means rebooting the DSTV decoder every now and then, showing them how to use Snapscan or WhatsAPP on their cellphones, or helping them sell an old car on the internet.
For others it means squeezing them into their home – lock, stock and barrel (“It’s all very precious, dear”) – and considering their needs day in and day out. Hats off to all of them, but a special shout out goes to the people who help them to help themselves, for instance by getting their finances in order.
Don’t believe what they tell you about teaching old dogs new tricks, or leopards being stuck with their spots. Your parents might appear more vulnerable and may struggle to hear you terribly well as the years go on, but they will most likely still have the ability to know a terrible deal from a great one. Once they have stopped earning or are earning less, they will be more keen than ever to make their money work harder.
An obvious starting point is to look at how much of their savings they are losing to others.
Sally, a 51-year-old customer of 10X Investments, for example, told the story of how she and her siblings launched an intervention to move their parents from the family home, which they could no longer afford or manage.
The three siblings had been buying groceries and paying bills for years when a break-in at their parents’ home compelled them to get the ball rolling to find more appropriate living arrangements.
The move was not too traumatic, but their father was a little bitter that the decision to sell the family home was not really his.
“I am not sorry they moved,” said Sally, who feels much better now that they are in a small unit in a suburban estate, rather than in the large house where she and her brothers grew up. But, she adds that they would do it slightly differently if given the chance to do it all again.
Sally wishes she and her siblings had helped their parents sort out their finances, and then helped them to decide on the next steps once they knew where they stood financially. Instead, she said, they had made decisions for them based on scant knowledge of the details.
Nobody, not even the parents themselves, really knew how much income they should be drawing, how much they were losing to fees on their retirement savings, or what the expected lifespan of their living annuity was.
If they had interrogated all of this, Sally said, her parents would probably have realised for themselves the need to downscale if they wanted to maintain other aspects of their lifestyle, such as occasional meals out and the odd holiday.
They would most likely have ended up making the choice to move, but with all the facts to hand and on their own terms.
As it happens, they know all of that now, having followed Sally across to 10X Investments.
They have a clear plan and total clarity on how their investments are doing. They know that their drawdown is appropriate and sustainable and, importantly, what they are paying in fees. Fees are another reason Sally is annoyed with herself for “putting the cart before the horse” and leaving dealing with the savings and investments to the end.
“Had we engaged with their finances earlier,” said Sally, “we would also have discovered how much they were paying in fees on their investments, totally unnecessarily.”
When Sally did finally get an investment statement from her parents and sent it to 10X Investments to do a fee analysis and cost comparison, she was shocked and saddened to discover that they had already lost a large chunk of their savings to adviser and platform fees, and were still paying over the odds.
In her defence, it wasn’t just poor logic that had stopped her from getting the analysis done early in the process. At around the time she moved her own investments to 10X, Sally said, she had broached the subject of investment fees with her Dad but had quickly dropped it when he accused her of insulting his financial adviser, who is also an old family friend.
Fast forward a couple of years, her parents were settled in their new place and Sally was better informed when she brought up the subject again. This time it was easy enough to get her dad to agree and simple to find an investment statement in his email inbox.
She sent the investment statement to 10X and quickly received a response that made the next step very easy. Her parents were paying a total of nearly 4% in fees on their old-school Living Annuity. By comparison, 10X never charges more than 1% before tax. While this may not sound like a significant difference, compounded over time paying 3% more dramatically ate away at her parents’ return.
In addition to charging very low fees, 10X, which uses index tracking to secure the return of the market as a whole, had consistently earned better returns than Sally’s parents’ provider. There was no pushing or shoving required, Sally simply showed her folks the numbers and they said: “Where do we sign?”
Another year on, Sally and her folks are feeling very positive about the future, their only regret being that they didn’t inform themselves and take charge earlier.
If you want to help your parents live a more dignified retirement start with the facts and begin making your cost comparisons today.