southern charter entrepreneur school module 1
TRANSCRIPT
Entrepreneur Program
Investment planning 101
Investing in an Annuity
Presented by
Mark Thompson
Investment Planning 101
Investing in an Annuity for retirement income
Module Objective -
1) Understand and know your client fully, draft a balance sheet.
2) Establish and agree on your clients risk profile and financial needs,
3) More specifically his income requirement, is it reasonable?
4) Explain and agree on available annuity options in simple terms,
5) Explain and agree on the tax and investment strategy going forward,
6) Recommend the most cost effective investment platform that your
client trusts and is comfortable with.
7) Summarise your discussions and agreements in a written signed
proposal
Case study – John Retires
After meeting with the client we gain the following information:
– John had 30yrs service with last employer
– Offered consulting work
– Small bond on the house R35 500
– Small Debt on the car R12 325
– Married to Joy - who is a practicing private beautician
– Post retirement medical aid paid for by the company
– John loves sailing, Joy loves cooking in Italy!
– Available Pension Fund capital after tax free cash withdrawal of R 2 810 031
– John requires an income of R12 000pm
– Interest / Guaranteed rate 15%
Case Study - John Retires > Gaining further
information
To gain a further understanding of John‘s needs and potential risks
We do a SWOT analysis on our client, enquire and note;
• Strengths - Strong balance sheet? EG no debt, or debt?
ability to work and earn an income?
• Weakness - Health? Maybe overweight? Not fit? Enough income?
Extra drain on income?
• Opportunities - Has a skill which adds value? May work longer, travel? re-locate? Potential future income?
• Threats - Consider Inflation, political uncertainty, financial scams!
At this stage, what conclusions can you
draw about John? What type of guy is he?
Conservative risk averse? Or Risk taker?
Conclude and agree on income required
and risk profile.
Cash investment
Disaster funds for both spouses
Tax free interest per tax payer
Threshold per tax payer
Cash LumpsumNormally limited to the tax free portion
On your spousesdeath the remaining
funds are paid toyour estate
On your deaththe living annuity
continues to pay yourspouse
Investment StrategyCPI +5%
Defensive Fund
Living Annuity OptionMarket related Income
and Funds transferred
on death to spouse/estate
On your spousesdeath the annuity
ceases leaving yourestate nothing
On your deathyour joint life annuitycontinues to pay your
spouse
Decision to invest in life annuity
dependent on
interest rate cycle
or Life Annuity OptionGuaranteed income
Funds lost on death of spouse
unless guaranteed for 10yrs
Investment StrategyHow much fixed / guaranteed income (if at all)
and how much market related income
will he need? Economic input - interest rate cycle
Your PensionThe balance of your funds - after taking tax free cash
portion is invested in an Annuity
Our role...is to develop strategies1) tax strategy - to be as tax efficient as possible
2) investment strategy - to achieve best risk adjusted return
3) change strategy - manage and assist with life change
Retirement Day Arrives - Some Questions?Where will my income come from?
How much can i take without depleting my capital?
you will need expert financial and investment advice!
1
2
3
At this stage you may wish
to take your client through
this schematic
Cash investment
Disaster funds for both spouses
Tax free interest per tax payer
Threshold per tax payer
Cash LumpsumNormally limited to the tax free portion
On your spousesdeath the remaining
funds are paid toyour estate
On your deaththe living annuity
continues to pay yourspouse
Investment StrategyCPI +5%
Defensive Fund
Living Annuity OptionMarket related Income
and Funds transferred
on death to spouse/estate
On your spousesdeath the annuity
ceases leaving yourestate nothing
On your deathyour joint life annuitycontinues to pay your
spouse
Decision to invest in life annuity
dependent on
interest rate cycle
or Life Annuity OptionGuaranteed income
Funds lost on death of spouse
unless guaranteed for 10yrs
Investment StrategyHow much fixed / guaranteed income (if at all)
and how much market related income
will he need? Economic input - interest rate cycle
Your PensionThe balance of your funds - after taking tax free cash
portion is invested in an Annuity
Our role...is to develop strategies1) tax strategy - to be as tax efficient as possible
2) investment strategy - to achieve best risk adjusted return
3) change strategy - manage and assist with life change
Retirement Day Arrives - Some Questions?Where will my income come from?
How much can i take without depleting my capital?
you will need expert financial and investment advice!
1
2
3
1) How much cash do you
Need Mr Client?
2)How much debt to settle?
3)How much for your disaster fund?
4)Do the tax calculation
5) Are their any plan limits?
6) Where are you going to invest the
cash
Retirement Funds - new retirement and death tables
Taxable income from lump sum benefits
Rate of Tax
0 - R315 000 0%
R315 001 - R630 000 R0 plus 18% of taxable income in excess of R315 000
R630 001 - R945 000 R56 700 plus 27% of taxable income in excess of R630 000
R945 001 R141 750 plus 36% of taxable income in excess of R945 000
Effective date - 1 March 2011
Note - Applies to involuntary retrenchment retirement benefits and severance benefits
Retirement funds - provident funds to disappear!
Contributions Pension, Provident and Retirement Annuity contributions limited to 22.5% of taxable income and a cap of R200 000 set.
Effective date: 1 March 2012
Lump sum payout The one-third lump-sum withdrawal limit applicable to pension and RA funds will apply to provident funds.
Effective date: 1 March 2012
The Future Leakage from retirement funds due to resignations and divorces will be attended to
Conclusion Rationalisation and simplification will lead to cost savings and be good for the consumer
Cash investment
Disaster funds for both spouses
Tax free interest per tax payer
Threshold per tax payer
Cash LumpsumNormally limited to the tax free portion
On your spousesdeath the remaining
funds are paid toyour estate
On your deaththe living annuity
continues to pay yourspouse
Investment StrategyCPI +5%
Defensive Fund
Living Annuity OptionMarket related Income
and Funds transferred
on death to spouse/estate
On your spousesdeath the annuity
ceases leaving yourestate nothing
On your deathyour joint life annuitycontinues to pay your
spouse
Decision to invest in life annuity
dependent on
interest rate cycle
or Life Annuity OptionGuaranteed income
Funds lost on death of spouse
unless guaranteed for 10yrs
Investment StrategyHow much fixed / guaranteed income (if at all)
and how much market related income
will he need? Economic input - interest rate cycle
Your PensionThe balance of your funds - after taking tax free cash
portion is invested in an Annuity
Our role...is to develop strategies1) tax strategy - to be as tax efficient as possible
2) investment strategy - to achieve best risk adjusted return
3) change strategy - manage and assist with life change
Retirement Day Arrives - Some Questions?Where will my income come from?
How much can i take without depleting my capital?
you will need expert financial and investment advice!
1
2
3
1)How much income does Southern Charter Financial
Services need?
2) Is it reasonable? Will he deplete his capital?
3) Discuss our investment strategy
4) Agree on objective - Yes?
5) Discuss where we are in the interest rate
cycle.
Asset Allocation is
EverythingOngoing research indicates that:
92% of performance comes from Asset Allocation,
6% from stock picking, and 2% from market timing
Determinants of Performance - Brinson et al Financial Analysts Journal
LO
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TE
RM
(L
AS
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RS
)
AN
NU
AL
ISE
D R
EA
L R
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Achieving Optimal Asset Allocation on the Efficient Frontier
In the worst market in living memoryPeriod - One year ending 30th September 2009
Southern Charter
Defensive +3.61%
Southern Charter
Balanced -8.79%
Southern Charter
Growth - 13.28%
JSE All Share
Index - 25.72%
Fund Ranking
1/54
3/40
1/17
Our Asset Allocation strategy Protects on the Downside
Prudential Low Equity Category
Prudential Medium Equity Category
Prudential High Equity Category
Personal FinanceSource
Our funds have delivered
JSE beating returns since
inception
Cash investment
Disaster funds for both spouses
Tax free interest per tax payer
Threshold per tax payer
Cash LumpsumNormally limited to the tax free portion
On your spousesdeath the remaining
funds are paid toyour estate
On your deaththe living annuity
continues to pay yourspouse
Investment StrategyCPI +5%
Defensive Fund
Living Annuity OptionMarket related Income
and Funds transferred
on death to spouse/estate
On your spousesdeath the annuity
ceases leaving yourestate nothing
On your deathyour joint life annuitycontinues to pay your
spouse
Decision to invest in life annuity
dependent on
interest rate cycle
or Life Annuity OptionGuaranteed income
Funds lost on death of spouse
unless guaranteed for 10yrs
Investment StrategyHow much fixed / guaranteed income (if at all)
and how much market related income
will he need? Economic input - interest rate cycle
Your PensionThe balance of your funds - after taking tax free cash
portion is invested in an Annuity
Our role...is to develop strategies1) tax strategy - to be as tax efficient as possible
2) investment strategy - to achieve best risk adjusted return
3) change strategy - manage and assist with life change
Retirement Day Arrives - Some Questions?Where will my income come from?
How much can i take without depleting my capital?
you will need expert financial and investment advice!
1
2
3Annuity Option Strategy
Discuss and explain both annuity options
Pros and cons and get agreement
On the risks of both options.
Decide and recommend a course
of action taking the clients
Feelings into account
How old is your wife?
Do you want to leave anything
To your kids?
Lets talk about beneficiaries
Living Annuities
• Beneficiary choice on death of annuitant: Annuity or lump sum
• lump sum proceeds received or accrued from a living annuities will be taxed according to the retirement tax tables
• No minimum drawdown required - maximum remains 17.5%
• Only natural persons as beneficiaries. EG no Trusts
Solve the following Case Studies
• Problem One - John retires when interest rates are high {15%} Inflation 10%
• Problem Two - John retires today
• Problem Three - identify what documentation is needed to be professional and compliant in both instances
• Problem Four - What else would you suggest?
We are with you for the long haul!
A wealth creation partnership.
Liv ing Lif e
Annuity Annuity Total
Opening Inv estment 2,310,031 500,000 2,810,031
Total all Fees -322,712 -322,712
Total Pension Paid -1,515,472 -779,926 -2,295,398
Total Capital Growth 1,890,646 0 1,890,646
Closing Inv estment 2,362,493 500,000 2,862,493
Current
Monthly Income 13,499 6,239 19,738
Variable Fixed
Portion Portion
Guaranteed
Case Study - John
• Case study - John Retires 10yrs later
Retirement Capital R2 862 493Gross Retirement Income - R19 653pmJohn has R180 000 in his Money Market accountJoy has R280 000 in her Money Market accountJoy still consults as a beautician
John and Joy maintained and improved their lifestylethey still live in Constantia, drive the same cars, and travel overseas once a year!
Southern Charter Financial Services (Pty) Ltd. is an Authorised Financial Service
Provider.
The content of this presentation and any information provided may be of a general nature
and may not be based on any analysis of the investment objective financial situation or
particular needs of the client. (as defined in the Financial Advisory Intermediary Services
Act) As a result, there may be limitations as to the appropriateness of any information
given. It is therefore recommended that the client first obtain the appropriate legal, tax,
investment or other professional advice and formulate an appropriate investment strategy
that would suit the risk profile of the client prior to acting upon such information and to
consider whether any recommendation is appropriate considering the client’s own
objectives and particular needs.
Any opinions, statements and any information made, whether written, oral or implied are
expressed in good faith.