PSG answers reader’s questions on AI, retirement, and financial emergenices questions answered. File photo.
With technology and more recently, the rise of AI, making investing and stock trading more accessible, I'm seeking professional guidance on where to start. Richus Nel, Financial Adviser at PSG Wealth, Old Oak.
Choosing a financial plan is not a standard off-the-shelf solution. It changes as your objectives change over various life cycles, not market changes. It encompasses the practical application of knowledge concerning human behaviour, investment, legal, tax, cost, service delivery, practicality and succession frameworks, which financial planners continuously study.
Structured frameworks and their sequence of application have been worked out by experts as “best practices” over many years.
Recent technology and AI financial planning tools are like ‘flying machines’. They are versatile and powerful but flying them safely consists of more than just getting off the ground. The simulations available to the broader public are rather simplified as one can expect. It however takes good pilots several years of flying the “real thing” before they are allowed to fly passengers around. Unsuccessful pilots can cause severe injury and death.
As such, choosing a DIY financial planning approach (even with AI) should be done with extreme caution. Financial planning consists of long, disciplined cycles of doing a combination of things correctly.
The biggest wins out of technological development (fintech) in recent years, are:
• Client friendly and real-time information
• Ease of communication
• Holistic thinking and tools
• Time efficiencies
Non-professionals in all disciplines, like architecture, the medical, legal and accounting fields and even farming frequently make amateur mistakes. It’s great to have hobbies but consult a professional to perform the expert functions so you get expert results.
I have been saving for my retirement since I started working 40 years ago, and I’m going to retire in February next year. The times and ways of life have changed so much since I started my career. Please advise me on some pitfalls to look out for when it comes to living off my retirement fund for the next life chapter? I’d like to make sure I’m as prepared as possible as I’m currently feeling very nervous about taking this huge leap into the unknown. Pierre Puren, Wealth Adviser, PSG Wealth, Jeffrey’s Bay.
Retirement is a significant milestone that requires preparation and planning to ensure a smooth transition into this new phase of your life. No strategy is perfect, and each individual’s needs are unique, but here are some pitfalls to be aware of and strategies to avoid when it comes to living off your retirement fund:
• Understand the costs and your budget: Many people underestimate their living costs in retirement, forgetting to account for inflation, rising healthcare costs or unexpected expenses. Healthcare can be one of the most significant expenses in retirement and medical aid doesn’t cover everything. Consider additional health insurance gap cover and remember to account for out-of-pocket expenses and long-term care.
• Failing to plan for inflation and diversifying your portfolio: Inflation reduces purchasing power over time, so ensure that your investment strategy includes assets that have the potential to outpace inflation over the long term. Also ensure your portfolio is well diversified to help manage risk and provide a mix of growth, income and safety to fund your retirement years.
• Withdrawing too much too soon: Withdrawing too much too soon can deplete your savings faster than anticipated. How much to withdraw depends on your total savings, life expectancy and investment strategy. Also note that withdrawals from certain investments like retirement annuities, pension- and provident funds are taxable and could move you into a higher tax bracket, so plan carefully.
• 7. Failing to adjust your living standards: If your retirement provision is not as much as you hoped, you might have to adjust your standard of living to make your money last. This could mean downsizing your home, cutting back on travel or finding other ways to reduce expenses.
• 8. Neglecting estate planning: Ensure that your estate is in order, including having an up-to date will, assigning powers of attorney, and specifying healthcare directives. This planning helps protect your assets and ensures they are distributed according to your wishes.
• 9. Overlooking social connections: Retirement isn’t just a financial transition but a social one as well. Many retirees find it challenging to replace the social interactions that work provided. Get involved in community activities, volunteer or pursue hobbies that involve others to maintain a healthy social life.
• 10. Not seeking professional advice: Given the complexities of retirement planning, it's wise to consult a certified financial planner, especially as you approach retirement. A professional can help you make informed decisions that align with your goals and desires.
I'm looking for better strategies to monitor my financial progress throughout the year. I want to ensure that I'm on track with my goals going into 2025 (such as saving for retirement), but also looking to possibly invest in new opportunities. Could you recommend the best tools or methods for tracking income, expenses and investments over time, as well as any tips for adjusting my financial plan based on these insights? Janko Sieberhagen, Wealth Manager at PSG Wealth, Mossel Bay Diaz.
To effectively monitor your financial progress, establish a consistent monthly review routine. Begin by setting specific goals for your key financial objectives, such as retirement, emergency savings, debt repayment or any other significant expenses. Here are some tips on how to go about it:
• Track your expenses and income: Use a budgeting tool or app to categorise and monitor your spending. Apps like 22Seven or a simple spreadsheet can help visualise where your money goes. Categorising expenses can highlight areas of overspending, making it easier to reallocate funds toward savings or investments.
• Review your savings rate: To stay aligned with your goals, calculate your savings rate — the percentage of your salary directed towards retirement and other savings. Aiming for 15% to 20% of your pre-tax salary toward retirement is a general guideline, though this may vary based on your situation and objectives.
• Monitor progress toward your retirement goals: Use online retirement calculators or planning tools to assess if your savings will meet your retirement goals. Your current savings, expected retirement age, annual contributions and estimated expenses will help to get a clear picture of your trajectory and see if adjustments are necessary.
• Evaluate and adjust quarterly: Review your progress. Did you reach your savings targets? Were there any unexpected expenses? Adjust as needed and reallocate funds if you’re behind or invest additional funds if you’re ahead.
• Consider professional guidance: Consulting a financial adviser can provide personalised insights and strategies tailored to your needs.
By tracking consistently, adjusting as needed and using available tools, you’ll stay on course toward a financially secure 2025 and beyond.
How can I ensure that I am adequately prepared for any unexpected financial emergencies in the new year? Chrisley Botha, Wealth Adviser at PSG Wealth, Paarl Cecilia Square Stockbroking.
Preparing for unexpected financial emergencies is one of the cornerstones of sound financial planning. Here are some practical steps you can take to ensure you're ready for whatever the new year may bring:
• Build an emergency fund: Aim to save at least three to six months’ worth of essential expenses in a separate, easily-accessible account. Start small if necessary; even saving 5–10% of your monthly income can add up over time. This fund should be reserved for genuine emergencies like medical expenses, home repairs or unexpected loss of income.
• Review your insurance cover: Ensure you have adequate insurance policies in place, such as medical aid, life insurance, income protection and short-term insurance for your car and home. Insurance acts as a safety net, shielding you from significant financial burdens when unforeseen events occur.
• Reduce debt: High levels of debt can leave you vulnerable in an emergency. Prioritise paying off high-interest debt, such as credit cards or personal loans, to free up funds and reduce monthly obligations.
• Create a budget with flexibility: Establish a realistic budget that includes savings for emergencies. Regularly review and adjust your budget to accommodate changes in your circumstances. Leave room for unexpected expenses by limiting unnecessary spending.
• Stay informed and plan ahead: Keep track of potential risks that could impact your finances, such as rising inflation or job market changes. Consider meeting with a financial adviser to review your financial plan and ensure it aligns with your long-term goals.
By taking proactive steps, you’ll not only safeguard your finances but also gain peace of mind knowing you’re prepared to face any potential challenges in the new year with confidence.
As a business owner, I am concerned about Eskom’s proposed 36% power tariff hike for 2025. As such, I have started looking at alternative energy systems to try and keep costs down. I am leaning more towards solar panels – however, I am not sure how insurance will work for these items. Please could you provide some clarity? Karen Rimmer, Head: Distribution at PSG Insure.
In South Africa, solar power remains a very popular choice as far as alternative energy sources are concerned. Not only can they offer lower long-term energy costs, but it can also help to ensure consistent energy supply – should loadshedding return. To answer your question a bit more directly, installing solar panels can be a considerable investment and it can also add substantial value to your business premises. Any new addition like this should be communicated to your insurance adviser, who can accurately reflect these improvements in your policy to safeguard your investment, alongside the risk management requirements, such as warranties and proof of compliance with installation standards.
Should you decide to proceed with installing solar panels, it’s important to know that these items are being increasingly targeted by criminals, according to the SAPS. This fact makes it essential for you to ensure these panels have the right type of level of cover, and that you are taking preventative measures with anti-theft mechanisms.
PERSONAL FINANCE