It’s easy to think that our introduction to financial planning happens when we sit down to our first meeting with our financial adviser, but in reality, it begins from the very first time we watch the adults around us pay for things.
From standing in the checkout queue when we were only two bricks and a tickey high, to the tooth fairy and our weekly allowance, our parents and other guardians shaped our early financial thinking and choices. As we become responsible adults, our parents reach an age where it becomes our turn to help them with their financial planning.
Statistically, only 6% of all South Africans will retire financially independent, which indicates that 94% of the population will need to turn to the state or look to their family members to support them in their golden years. Given this fact, sound financial planning for the elderly becomes vital to ensure these individuals’ livelihood and correct succession planning.
Meera Naidoo, Head of Legal Support at SanlamConnect Legal Support, recently shared a great article with our team, highlighting crucial financial planning considerations.
Ensure that your parents have an accredited, trusted financial adviser and that at least one adult child is included in financial planning meetings to keep all siblings updated and ensure that the parents’ needs are accurately being understood and met
Your parents’ risk cover and retirement planning should be reviewed at least once a year. While risk cover for your parents may not seem to be a priority, your family must consider the impact on their livelihood in the event of contracting an illness, as well as the estate expenses incurred when they pass away.
Upon retirement, should your parents belong to a retirement fund, they will be required to purchase a compulsory annuity with at least two-thirds of their retirement interest (provided the fund value exceeds R247 500). As of 1 March 2021, provident funds have also become subject to annuitisation subject to the rules and exceptions stipulated in the Taxation Laws Amendment Act. A living annuity or life annuity will need to be considered, depending on your parents’ needs. A living annuity, unlike a life annuity, allows flexibility to do the following:
On an annual basis, they will be able to determine their income, opting for a minimum of 2.5% up to as much as 17.5% of the capital. This provides your parents with the flexibility to adjust their income with their changing needs over time.
With the flexibility to select the funds where the capital is invested, they could still grow their invested capital
They will have the option to nominate a beneficiary, who will then have the option to either continue receiving the annuity income (subject to their own marginal tax rate) or to commute the annuity (subject to retirement lump-sum tax in the hands of the deceased)
Ensure your parents have a valid will. If your parents have a joint will, upon the death of the first parent ensure the surviving parent reviews the joint will and has a copy or concludes a new will setting out their testamentary wishes.
Encourage your parents to put together a life file, containing a copy of the will, insurance policies, all investment and bank account details, accountant details, medical details, doctors’ details and a list of chronic medication which can be used in the event of ill health and hospitalisation
The use of internet banking should be encouraged. This will allow you to assist with payments and the overall management of their accounts and funds while simultaneously elevating administrative issues that can easily be managed online.
Your parents may opt to give you general power of attorney to deal with their affairs. This will provide you with the authority to transact on their behalf when they cannot physically be present, for example, in the case of illness or immobility. What must, however, be kept in mind is that, should your parents become mentally incapacitated, the power of attorney will become null and void and as you will no longer be authorised to act on their behalf, any future attempted actions will amount to fraud.
When dealing with your own financial planning, remember that there is a reciprocal duty of support between parent and child in terms of our common law. Should you foresee that your parents may become financially dependent on you one day, it is vital to ensure that you consider this when implementing your own financial planning needs.
We realise that all of this can be completely overwhelming, which is why we’re here to help you with it. You’re not alone, and neither are your parents.