Retirement: the amazing and scary truth
By Bruce Cameron and Magnus Heystek
Published by Worth Publishing
Why has noone told this story so simply and so completely before?
Here is a book on a complex subject written in clear language by two personalities in the field of personal finance. It appears at a time when the risks in funding retirement are rapidly being transferred to employees through the move to defined contribution funds. Its aim is to empower individuals to build adequate resources for their retirement years.
In the past, conventional wisdom was that "big brother" would look after us in our old age (despite the fact that he often didn't). Information on retirement related subjects was not easy to come by, but no matter the risk of funding our retirement years seemed to be well and truly our employer's problem (or so we thought). What you can do to protect your retirement years is the subject matter of this accessible, modestly priced volume.
The book is divided into four sections. The first describes the basic retirement fund vehicles used to build up retirement savings and the new protective legislation introduced in 1996. This is followed by a discussion of the consequences of switching retirement funds many employees (and pensioners) are being asked to turn from defined benefit to defined contribution funds and the risks they may expose themselves to are discussed here. The first section ends with a discussion of the additional benefits of group life and disability cover attached to retirement funding vehicles.
A major source of angst has been created by shifting the onus of where retirement contributions are to be invested on to the employee. The next section of the book takes a look at the world of investments. The first chapter sets out the golden rules of investing: clear your debts first, protect against inflation, earn a real rate of return, make compound interest your ally, balance risk and reward, formulate your objectives and average your costs. The next chapter reviews the range of products available which yield a monthly income for investors. The section ends with a look at offshore investing.
Section three deals with the crucial areas of tax and estate planning. Not surprisingly, the tax chapter is the longest in the book. The basis for the taxation of retirement funds is simply laid out, the potential changes which may result from the recommendations of the Katz Commission (into the taxation of these funds) are explored and the tax implications at and after retirement explained. This is followed by the basics of estate planning. It contains sound advice for people who will leave estates big enough to attract estate duty. The section ends with a brief description of trusts and their potential value in estate planning.
The final section of the book deals with a variety of special issues how the timing of one's retirement can save tax, the implications for your retirement funding of changing jobs, how to ensure adequate health care after retirement, and issues specific to women (who live longer than men and hence need to have accumulated greater assets prior to retirement). The book ends with a look at where to live after retirement. In particular the risks associated with retirement villages are discussed.
What I liked about the book:
* It's short yet very comprehensive;
* It answers many of the questions we all have about the bewildering complexity of retirement related issues;
* It is written in plain English, cutting through the technical jargon usually associated with investments;
* It describes the advantages and disadvantages of a wide range of financial products;
* It highlights the connection between risk and reward, a connection often forgotten in the heady world of a rising stock market;
* It stresses the need to plan for the future, today more so than ever;
* It contains excellent examples and simple calculations which illustrate the difference in value of a variety of investment decisions;
* It provides vital information not always forthcoming from the sellers of investment products;
What I didn't like about the book:
* The absence of an index one often hears of an investment, scheme or whatever and it would be useful to be able to access the information immediately;
* No closing chapter the book ends rather abruptly;
* Whilst the authors have been very careful about not implying that markets are in any way predictable, they do suggest that when buying a voluntary purchased annuity, it is "important to try and anticipate, if possible the future movements of interest rates". Recent interest rate movements expose the futility of such attempts.
When all is said and done, a valuable addition to financial literature for the average person and indeed for personal financial planners. This "amazing and scary truth" about retirement is an invaluable guide to everyone concerned with their financial future in South Africa.