Blending solutions to create an ideal outcome
Published on 28th January, 2022 at 12:12 pm
Linda Blom, business development manager at Glacier by Sanlam, discusses the key to designing a post-retirement portfolio that enables you, as an investor, to retire with confidence.
As with any long-term relationship built over time, the one you have with your intermediary should involve sharing as much as possible about your lifestyle, values and unique needs. This is vital to designing a post-retirement portfolio fit for you, as there is no one-size-fits-all solution when it comes to pre- and post-retirement planning. Blom discusses how the Sanlam Wealth Edge Endowment Plan, blended with other offerings, can create a customised future for investors.
Getting to know you, the investor
Case example: Mr Richie
Mr Richie is 65 and has recently retired. Here’s what we know about him:
- He’s single and has no one who is financially dependent on him.
- He falls short on his post-retirement income based on the available capital from his employee retirement fund.
- He no longer needs a big house, so he decided to sell his property.
- The proceeds from the sale of his house and the one-third retirement lump sum from his employee retirement fund, combined, amounts to R5 million.
- He needs the R5 million to provide a guaranteed income of R10 000 per month after tax, to top up his income for fixed expenses.
- He also needs R200 000 of the R5 million to always be accessible. He has a frail parent and may need to cover unexpected or emergency medical expenses.
A solution tailor-made for Mr Richie
Solution option #1
One solution for Mr Richie would be to invest in a Fixed Return with Income Plan. This would provide him with a guaranteed income, and he would get the original capital amount back after five years. However, he would not be able to choose a specific value of the income on this product. The income is calculated based on the capital amount provided and the rate for the week in which the money would be received.
Mr Richie only needs R10 000 guaranteed per month, which is lower than what a Fixed Return with Income Plan would provide for the capital amount he has available. So, let’s look at some other options.
Solution option #2
A portion of the capital could be invested in a guaranteed income plan (commonly referred to as a term annuity), which would provide Mr Richie with a choice of a guaranteed income of R10 000 per month for between five and 15 years, with no capital payable at the end of the chosen term.
Solution option #3
Another popular alternative is to invest a portion of the capital in a voluntary life annuity, providing Mr Richie with a guaranteed income for life, with the choice of a guaranteed term of zero to 20 years.
Solution options #2 and #3 qualify for the Income Tax Act’s Section 10A exception. This means that only the non-capital portion of the income is taxable, making both solutions tax-efficient.
Once a choice has been made about the most suitable way to provide for Mr Richie’s top-up income, he should also consider how to invest the remainder of the capital, which will potentially grow back his original capital to more than the original R5 million.
Combinations pack an investment punch
Combination income solutions really do the heavy lifting in a portfolio, says Blom. The remainder of Mr Richie’s money could be invested in a diversified investment portfolio, ensuring growth, legacy – an inheritance passed down to the next generation, should he wish – and longevity for Mr Richie’s hard-earned savings. For example, if he invested a portion of the capital in a voluntary life annuity to provide the top-up income, he could invest R200 000 in a cash option, which provides liquidity at all times. The rest could then be invested in the Sanlam Wealth Edge Endowment Plan, which offers:
- an upfront additional allocation of 8% after the deduction of the advice fee, plus VAT;
- a Wealth Bonus, which incentivises Mr Richie to stay invested after the initial five-year period;
- the option of the Glacier Solution Funds, which are managed according to Mr Richie’s risk profile; and
- a unique unit guarantee that offers protection within the investment.
Knowing their client is half of an intermediary’s job
Truly knowing you, the client, and understanding your needs is a large part of the job done in pre- and post-retirement income planning. By combining certain growth and income solutions, you could achieve a custom-made diversified investment portfolio and balance the need of longevity, legacy, income and flexibility.
All monetary values in this article are assumptions for illustrative purposes only. Because markets fluctuate and every client is different, values, rates and incomes will vary.
Retiring with confidence starts with a conversation with the right experts. Book a meeting with a qualified intermediary today to discuss your post-retirement income solution options.
Glacier Financial Solutions (Pty) Ltd, Sanlam Life Insurance Ltd and Sanlam Developing Markets Limited are Licensed Financial Services Providers.
The Sanlam Wealth Edge Endowment Plan is underwritten by Sanlam Developing Markets Limited and administered by Sanlam Life Insurance Ltd.
The Fixed Return Investments by Sanlam are sinking fund policies underwritten by Sanlam Developing Markets Ltd.
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