Some of us are familiar with FOMO, “the fear of missing out” when it comes to social media. This is when we are so scared of missing anything, that it takes over people’s lives and they are online all the time. One must set limits, adhere to them, and be disciplined.
As advisors, we are often told not to make clients feel fearful, as people fear death, disability, and retirement, and therefore we should not fuel the fear because clients do not want to think about these. But we, as advisors, deal with realities. We are giving clients the option to acknowledge reality, and by offering our solutions we remove the fear away and provide peace of mind. We deal with claims regularly, and we have to face people when severe events happen to them. The realities are, your chances of dying are 100%, becoming disabled 67%, contracting a severe illness 75%, and life expectancy is increasing all the time, putting strain on people’s retirement provision. Another reality to consider is affordability, as people are struggling, but let us take the flipside into account: If you cannot afford the cheaper alternative now, what is the price you will pay should any of the abovementioned events occur? You and your dependents will, in all likelihood, struggle even more. The solutions available to clients these days cost money, but if you consider the premium versus the benefits at claim stage, there is no comparison.
Running out of Income:
Your ability to earn an income is your biggest asset, without a doubt. Let us do a quick calculation: Say, for example, you earn R50 000 per month over 30 years increasing with inflation every year. That is money that you live on, funding a certain lifestyle, and to care for your family. That means that you will earn approximately R32 000 000 during those 30 years. What will happen if you lose part of or the total ability to earn an income as a result of becoming disabled or passing away? This capital amount is based on the loss of income of R50 000 per month income. What else do you own that is worth that much? Look at how much money we spend monthly to protect our family in our home with alarms, gates, and the extra cost of living in a gated community? What amount do we pay to cover our cars and household contents which will never get close to the value of your income? This is not to say that you should not have these expenses, on the contrary, but have you paid the same attention to protecting your greatest asset, your income? What amount would you consider paying to protect your income earning ability in relation to the total value of your portfolio?
The answer should be “as much as it takes” even if it requires cuts elsewhere in your budget. You might be able to stay without dining out or buying less expensive goods and cars; items that you will not be able to afford anyway with insufficient cover in place and an event occurring which reduces or terminates your ability to earn an income.
In the PWG financial planning house view that we have developed over 30 years, protecting your income on death and disability is non-negotiable. We believe that you should have disability income protection for 100% of your income, and the required amount of life cover to replace your income.
Running out of Money:
This is a fear that most people are living with. Covid-19 has scared us even more with many people losing their jobs, businesses or worse, their lives. We have, for many years, virtually begged clients to have an emergency fund in place, some kind of savings that can carry you for 6 – 12 months should have no or a reduced income. The reality has hit many people hard, and many have realised just how important this is. Stress levels all over the world have increased dramatically. People were so scared of the financial implications of the lockdown; even more than the deadly virus itself. You may remember that wonderful, expensive holiday that you had a few years ago, and how that money would have helped you if you did not splash and saved some of it. We are not saying that you should stop living and enjoying life, not at all, we just want clients to understand the realities and stop procrastinating about saving. It is no longer a “nice to have”; it is a must. And do not wait, do it now, start now, because we never know what a 3rd or 4th Covid-19 waive will bring.
Reality of time:
Time is not always on your side in two ways. In the above paragraph I mentioned the 3rd and 4th possible Covid-19 waives. I expect, like me, you immediately felt stress, thinking “there is not enough time to create a big enough emergency fund”. That might be true and possibly is, but as many people experienced during the past year, every cent counts! Save as much as you can, but do not delay. This is definitely not the time for excessive spending; this is not over until the fat lady sings, so buckle up for the ride!
This brings us to another reality of time, which is living longer. Over the last few decades, we have seen how life expectancy has increased dramatically (not considering Covid-19). This simply means that, where we, 10 years ago planned retirement from the age of 65 to around 80, we have now increased it to 90 at least. The reality of this is that you will need more money because the time you will need to have an income is longer. On the other side of the coin, the time you have to accumulate sufficient capital is limited. It often comes as a shock when I tell clients aged 30, wanting to retire at 65, that they only have 420 pay checks remaining to achieve their goals. Waiting and saying “later” is not an option anymore, because 420 pay checks is the reality, and even that is not enough paydays to cover your in-retirement income for the same period that you earned money.
In conclusion:
Some clients seem to, based on many ideas, lose track of reality. The basic concepts and cover set out above are not “optional” anymore, they are crucial. The fact that you will die, you cannot change, the number of pay checks left will probably not change, and although you may hope to win the lottery, our plea is: Do not put yourself or your dependents in a position where you have to win the lottery to be able to stay alive.
Contact us today if you are ready and willing to opt for financial peace of mind!
Author: Deon Lewis.
Financial advisor at PWG Advisory (Pty) Ltd.