Your retirement, investment, and wealth questions answered

I started investing a fixed amount of R1 500 per month towards a retirement annuity last year.  How should I factor inflation into my investment for optimal returns when I retire? Tunin Roy, Wealth Adviser, PSG Wealth, Cape Town

Inflation is one of the biggest threats to your savings, and addressing it effectively is key to ensuring your retirement annuity (RA) secures a comfortable future. At PSG, we believe that investors regularly overestimate the risk of the market but underestimate the risk of inflation over the long-term.

R1 500 monthly is a great start, but over time, inflation erodes the purchasing power of your savings. To stay ahead, increase your contributions annually by at least the inflation rate — typically 5 - 6% in South Africa. For instance, if you increase your contribution to R1 575 in year two, this adjustment ensures your savings keep pace with rising costs. The tax deduction offered on contributions also provides an immediate boost to your savings, which compounds over time.

Your RA portfolio should focus on inflation-beating investments. Growth assets like equities and property are crucial for long-term returns that outstrip inflation. Avoid overly conservative portfolios with a high allocation to cash or fixed income, as these often struggle to keep up. Remember, it’s not just about the nominal return but the real return — your investment’s performance after inflation. A portfolio targeting a consistent real return of 3 -6% should grow your purchasing power.

A good financial adviser will provide you with a financial plan which projects your current and post-retirement expenses and your investment values over time, considering inflation, to understand what you will need to live on after you retire and if you are on track to meet those costs. Personally, I often increase costs such as medical aid contributions, education costs and rates and taxes by more than CPI as typically their inflation rate is higher. 

By working closely with a financial adviser, you can refine your strategy, monitor your portfolio, and ensure your retirement savings remain on track despite inflationary pressures.

I received R1.5 million following my recent divorce and would like to invest this lump sum. Can you advise me on how best to make this investment work for me if I plan to make some withdrawals for my children’s education in a few years? Jonathan Fisher, Wealth Manager, PSG Wealth, Sandton Grayston

I’m going to assume that you’re in your forties, have a medium tolerance towards risk and that your financial goals are to achieve returns of at least inflation plus 5%.

Given that you’ll be requiring the funds in a few years from now, building a discretionary investment portfolio of multi-managed unit trust funds could be beneficial. We call this a “bucketing strategy.” Essentially, it comprises three buckets, a short-term bucket (1-3 years), a medium term-bucket (3 - 7 years), and a long-term bucket (7 years and beyond). Typically, the short-term bucket comprises multimanager income funds. This bucket will look after the drawdowns which you’ll start making in a few years’ time for your children’s education. The medium-term bucket will be more focused on medium risk multimanager funds that have equity (local & offshore) as well as bond exposure. The long-term bucket will be more focused towards higher growth, and slightly higher risk multimanager funds that are mostly equity funds (local and offshore). 

Effectively we’re trying to build a tax efficient Voluntary Investment Plan (VIP) that will grow over time, at least 5% ahead of inflation. The preference for using the multimanager approach over the single manager approach is that you get the best of the various fund management houses’ strategies combined to give you the best risk adjusted returns, with each fund’s style complementing each other.

I plan on buying a flat as a long-term investment and using the income to cover the bond repayments. Do you think this is a wise strategy to build wealth for the future and can you share some of the key financial factors I should consider before committing? Janko Sieberhagen, Wealth Manager, PSG Wealth, Mossel Bay Diaz

Buying a flat as a long-term investment — with the aim of covering the bond repayments through rental income — is a popular strategy among aspiring property investors. It offers the dual benefit of property appreciation and passive income, making it an attractive option for building wealth. But is it truly wise? The answer lies in how well-prepared and financially aware you are.

Property tends to increase in value over time, and if managed carefully, can offer returns both through rental income and eventual capital growth. Ideally, your tenant helps you pay off your bond, and over the years, as the loan decreases and rentals increase, your net worth grows.

However, success is not guaranteed. Here are key financial factors to consider before committing:

• Affordability: You need to qualify for the bond based on your own income — not just projected rental returns. Ensure you can carry the bond during vacancy periods or unexpected repairs.
• Upfront costs: Beyond the purchase price, you’ll need to budget for legal fees, transfer duties and bond registration costs.
• Rental market research: Understand the rental landscape in your chosen area. What are realistic monthly returns? Are vacancies common? Overestimating income is a frequent and costly mistake.
• Interest rates: Bond repayments can rise if rates go up. Consider whether a fixed-rate bond offers more peace of mind.
• Ongoing expenses: Levies, maintenance, rates and property management fees affect your returns. Budget for these in advance.
• Tax implications: Rental income is taxable, but many expenses are deductible. Get professional tax advice to maximise deductions.

Buying a flat can be a solid step toward long-term financial independence — if done with good financial planning.

My teenage daughters have started receiving pocket money and I would like to start teaching them the importance of budgeting, even with a small amount of money. Do you have any key, simple tips which I can share with them? Bianca van Niekerk, Wealth Adviser, PSG Wealth, Vanderbijlpark Financial Planning 

Great job on teaching financial responsibility early! For them, pocket money is more than just spending cash — it’s their first income. Whether they receive it in cash or via a bank transfer, it’s essential to instil good money habits.

Help them manage their allowance by focusing on three key areas: needs, wants and savings. If they don’t have real “needs” yet, introduce small responsibilities like buying their own face wash or deodorant — even if it means slightly increasing their allowance. Wants cover outings, tuck-shop treats or entertainment. Encourage saving at least 10% of their allowance. A piggy bank or savings jar works well and adding a surprise R10 now and then teaches them how money grows.

Tracking spending is important and budgeting apps might make this process fun for them. Setting clear savings goals like extra spending money for an upcoming holiday helps them stay motivated. Avoiding impulse purchases is also key, so advise them not to carry all their money to prevent unnecessary spending.

Consider teaching them how to earn extra money through small jobs like babysitting or tutoring. When they make budgeting mistakes, as all kids do — help them learn without being too hard on them. The goal is to develop a healthy attitude toward money, not instil fear.

I’m a new homeowner and am therefore also new to the world of homeowners’ insurance. Are you able to share a few tips around the proactive measures I can take to help my insurer process my claim in the event of an incident, especially in relation to damages caused by hail, water, lightning and other adverse weather events. Ryno de Kock, Head: Distribution at PSG Insure

Congratulations on your new home! Yes, there are a few simple steps you can take to help your insurer pay out your claims. These include: 

• Make regular maintenance a must

With global warming on the increase, it’s important to conduct regular maintenance to mitigate the impact of storm damage. Regularly clearing away leaves, branches and debris from gutters and downpipes can help ensure that any gushing water has a clear exit path into storm drains. In the long-term, this could reduce the potential for leaks and internal water damage to your property as well as the valuables within your home. You should also check your roofs for broken or chipped roof tiles. Even the smallest damage to a roof tile could represent a vulnerability that will ultimately worsen as the roof is buffeted by wind, hail or rain.  

• Know your policy prerequisites

Not only is regular maintenance an effective way to prevent unnecessary claims, but it is also necessary to ensure that the policy conditions are met.  Most insurers include in the policy conditions that policyholders need to take all responsible steps and precautions to prevent accidents or losses.  Every policy will include terms and conditions that the insured needs to meet for a claim to be valid. 

• Keep your records in order

Another often overlooked yet essential aspect of a homeowner’s responsibilities is record keeping. Because insurance policies typically cover property on a replacement value basis, it’s important for you to ensure that your home and its contents are insured for their current replacement costs of your insured property – rather than outdated valuations or the market value. Don’t forget to take clear photos of your valuables too!  

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