08 Nov 2012
It may seem unnecessary that because someone is worth millions of Rands that they would need to engage in retirement planning in the way a person of more modest means would. But even those who are considered to be high net worth individuals can place their lifestyle and legacy in jeopardy if they do not have a realistic retirement plan.
This is according to Brian Spanier-Marson, Director of Mr. Retirement, who goes on to explain that this plan needs to take into account a variety of risks and objectives, along with the discipline to adhere to it through the inevitable see-saw of market conditions.
"There are important things to consider and certain potential pitfalls for these individuals to be aware of.”
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High net worth individuals confront many of the critical issues related to retirement planning, says Spanier-Marson: “They have to make certain assumptions about the future of the economy, inflation andtheir own life expectancy. They also have to settle on an asset-allocation plan to ensure that theymeet their lifestyle requirements, while having enough money to provide for spouses, children, grandchildren and charities.”
He says that high-income earners have grown used to a certain standard of living, so it is essential that they manage their nest egg wisely in order to grow it while they are still earning money, so that they can live in the manner they have become accustomed to in their retirement.
“Investments need to be structured in a manner to ensure this cash flow. As such, it’s crucial to obtain expert advice on how to do this from a suitably qualified expert for structuring affairs.
“This knowledgeable person must assist in deciding how best to structure and manage the individual’s portfolio so that it has a balanced mix of conservative assets (such as cash and money market investments), as opposed to growth assets (such as equities)."
Knowing what the right balance is can be very tricky and it is crucial to the ultimate success of the plan - so, don’t be afraid to get help, advises Spanier-Marson.
“At the moment, in particular, asset managers are keen on owning foreign assets – believing that these will provide a better return going forward,” explains Spanier-Marson.
He says the challenge, however, is working out how to structure this foreign exposure and who to choose to manage it? Is it better to choose a local expert who is specially qualified and experienced in our particular economic circumstances, or do you opt for an overseas-based manager.
Researching the pros and cons of this can have an extreme impact on your future in retirement, so it is essential to take your time and work out which option best suits your needs.
“High net worth individuals may also have to deal with the issue of how they exit assets, for example, how they will claim their money in retirement from an investment they have made in a private company.
"Approaching retirement means that they will perhaps not be actively involved in the managing of this asset and the running of the company, so the way they will be compensated in their retirement needs to be carefully planned out.”
It’s essential that high net worth retirees work out how best to utilise the tax advantages being offered in order to minimise the amount of tax they will have to pay.
“Yes, it is true that these people may have saved more, but they will therefore have to pay a higher rate of tax. Don’t forget to take into consideration the estate planning aspects too, which are all too often neglected. Frequently, a large chunk of a deceased estate will be used to pay the necessary taxes, which often doesn’t leave enough for those left behind to retire on. How to minimise the estate tax, perhaps by utilising a trust, needs to be carefully analysed and worked out.
“Just because you are regarded as wealthy, doesn’t mean you don’t need to plan for your retirement – there are a lot of elements that need to be considered and worked out. In fact, one thing is for certain, the better organised you are for retirement, the smoother and more stress-free your retirement is likely to be,” says Spanier-Marson.
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