There’s a common misconception among South Africans that financial planning is something you only have to think about after you retire. Up until then, you’re earning a salary, saving up through your employer's retirement fund, and there’s a good chance you also have your medical aid through the company.
So, many people believe there’s no need to speak to a financial planner until the time comes to cash in your pension and start living off the money you saved for retirement.
In reality, that’s what I would call the eleventh hour. I’ve found the real value lies in working with a financial planner much earlier, while you still have money coming in, and you have more levers to pull.
Mostly, that’s because I’m a big believer in enjoying your life at every age and not putting off your dreams for a future date that isn’t guaranteed. But what I’ve also found is that comprehensive lifestyle financial planning almost always unlocks possibilities you didn’t know you had.
That’s what happened with our client, Mr Dube. At 55, he decided to look for a financial planner because he was planning to leave corporate at 65 and he wanted to make sure he was on track. What we discovered: Mr Dube could comfortably retire at 60 – five years earlier than he thought.
Watch: How we helped this executive halve his time to retirement
How can a financial planner help you retire early?
Mr Dube’s story isn’t a fluke. In fact, we’ve helped many executives realise that they could retire earlier than they thought.
Often, these people are in their forties or fifties, they’ve been working hard for two or three decades and done really well to climb the corporate ladder. But now they’re exhausted. Something we’ve heard more than once is: “I just can’t do this anymore. It’s not that I don’t want to work, I just want to do it on my own terms.”
The perk of working for a company is that you probably have employee benefits. In other words, you’ll have some kind of pension fund, medical aid through the company, and perhaps some death and disability cover, funeral cover, and so on.
Even better, you’ve probably never really had to think about these things. There’s a company that administers the funds, HR deals with them, and every year you get a statement about how your investments are doing, which you may or may not look at.
Read more: SA Financial planners explain how to decode your company benefits statement
The downside is that these benefits are being managed according to a rule of thumb. You’re not getting personalised planning or advice tailored to your own individual life goals.
What’s more, you may have taken out additional policies and investments in your personal capacity. Perhaps through your family’s insurance guy or your cousin’s boyfriend’s soccer buddy who made a compelling case at a braai 15 years ago.
A good financial planner will look at all of these different puzzle pieces and see how they fit together – and more importantly, how well they fit your personal goals. What we often find with executives in their forties and fifties is that they’re over-insured. They’re paying thousands for policies every month in their personal capacity that they don’t actually need because they have enough through the company.
Another common scenario we see is that executives are often over-insured in one area (e.g. they have more life insurance than they need), but they’re lacking cover in another (e.g. they have no disability income protection).
And when it comes to that exciting goal of leaving corporate and making work optional, what we sometimes find is that with a bit of tweaking here and some optimisation there, that date can be brought forward.
That’s what happened with Mr Dube.
What happens when you work with a financial planner to retire early?
As you’ll see in the video above, a financial planner will ask you a lot of questions about all aspects of your finances. This might be a form that you fill in, or they could gather the information in a meeting. At Freedom Financial Planning, we do a combination of the two.
Once they have that information (your income, your investments, any property you own, cryptocurrency, your debt, etc), they can start building a picture of where you stand financially.
Every financial planner has their own process, but if you’re someone who prefers visuals to spreadsheets and tables, you’ll enjoy working with a financial planner who does cashflow modelling, like you see in the video. That means working with software that takes all the confusing numbers and turns them into a graph. So now you can see exactly how much money you have vs how much money you need.
And you can also see, in real time, how the decisions you make will affect that graph.
In Mr Dube’s case, this was the game-changer.
Read more: What is a continuation option? And should I take it when I leave my employer?
How financial planning helped this executive retire in half the time
Mr Dube’s situation was actually a lot better than he realised. He and his wife had been very smart with managing their finances. They had made great decisions over the course of their careers that gave us a lot to work with.
In Mr Dube’s case, he hadn’t done anything wrong. He just hadn’t structured his finances in the most efficient way because he didn’t know what he didn’t know.
Once we started optimising, something dramatic happened with Mr Dube’s graph: He discovered he could choose to stop working five years earlier without worrying about running out of money in retirement. And he could do it without saving a cent more than he already was!
Just think… if Mr Dube had waited until retirement to start financial planning, he would have worked five years longer than he needed to. Now he and his wife can spend more time enjoying their holiday house at the coast, travelling, and living the life they worked so hard to build.
Curious about our financial planning process? Read more here.