WeeklySA_AdminSecure:Investors must check against high admin fees
By Isaac Moledi
Retirement savings may not be your priority right now due to COVID-19 crisis and fears of a greater economic downturn but knowing what questions to ask when deciding on retirement can go a long way to assist you reap greater rewards later in life.
Financial experts say the problem with many people is that they are too shy or embarrassed to ask the right questions as they may be seen to know too little or nothing about the subject and this may make them to end up leaving their financial future to a later date.
“It’s a big problem that people just leave their personal finances up to someone else when the right time comes,” says Asavela Gwele, Investment Consultant at 10X Investments.
She said something they observe often in the retirement savings industry is that people contribute to a pension fund for years and years, but never so much as look at how their investment is doing. “People are afraid they will ask the wrong questions. But there are no wrong questions,” she says.
“The worst thing you can do when you don’t have answers is to not ask questions. “No one cares about your money more than you do. So, get involved, ask questions. She says questions such as ‘How do I get my statement?’ and ‘What happens to my money if I pass on?’ are crucial.
“Not asking questions may help you avoid embarrassment now but the alternative could be a lot more awkward’’. Gwele lists a few basic questions as well as answers that retirement savers can ask themselves to help get them on the right track to a secure financial future.
Am I on track to reach my savings goal?
She says saving for retirement without having a plan in place is like getting on a train without checking the destination. “Online calculators can help you get started. Simply add a few basic details such as your age, your income and how much you have saved to generate a savings goal and a retirement plan.”
She says once you have a plan in place, it’s important to check that you’re on track to achieving your goal. “Revisit that plan regularly, especially if your circumstances change,” said Gwele. “If you start a new job or get a promotion, take a look at the plan and make adjustments so your plan keeps up with your life.”
What am I paying in fees?
“Again, this is something that should be easy to understand.” Gwele says paying a high proportion of your growth in fees is a very common mistake in retirement saving. She says that based on a comparative study by her company the average individual retirement saver in South Africa pays around 3% in fees (including advice, administration and investment management).
“But there’s a new breed of asset managers that charges significantly less.” She said the 10X Investments fee is less than 1% before VAT. “Paying high fees can do more damage to your investment than you might think possible.” Losing a chunk of your fund’s total to fees every year costs you a lot more than the fees you lose; it also costs you the growth on that money, and the growth on that growth over time.
According to her, understanding how much you are paying in fees should be easy. “It can seem a little complicated when the fees and costs for various aspects of management are calculated separately and according to different pricing formulas, such as a percentage of the value of your assets for one cost and a monthly rate for another. But there is a way to cut through all the mystery and confusion. The equivalent annual cost (EAC) will give you a number that is simple to understand and compare across providers, says Gwele.
How is my fund performing?
You should receive regular statements from your provider. Don’t just put them in the trash or your “read another time” folder. Take a moment to look at how you are doing. It should be simple enough to see how your investment is growing. “If you don’t understand your statement, ask your broker or a representative of the fund. This is your money that you’re paying someone else to manage. They should be able to tell you how you’re doing,” says Gwele.
What else am I getting for my money?
She says retirement funds offer additional benefits, everything from financial planning tools to life cover, disability insurance and policies that cover the costs of a funeral for family members. It’s always good to know what you have, especially since you may be buying duplicate insurance cover.
“What you really should be afraid of is waking up too late to the reality that you took the wrong train or, worse, are stuck in the ‘wrong’ retirement,” says Gwele.
