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Understanding the psychology behind retirement

09 December 2019 South African Independent Financial Advisors Association (SAIFAA)

For many people, the thought of retirement is no less stressful than the thought of retrenchment, and financial planners need to be fully cognisant of this when advising clients on their future financial situation.

This important factor was recognised recently when the South African Independent Financial Advisors Association (SAIFAA) held the first in a series of certification workshops aimed specifically at advising independent financial advisors on post-retirement planning.

“Many financial advisors simply push product in exchange for commission, but there’s a psychology around retirement that needs to be carefully understood, particularly when you appreciate that people are living much longer, often well beyond their working careers,” notes SAIFAA chairperson, Derek Smorenburg.

Financial advisors need to fully comprehend and truthfully answer one very powerful question at this stage in their client’s financial planning, and that is: ‘Is the client’s money your client, or is the client your client?’

It’s an entirely different mind and skill set that needs to be mastered, according to Smorenburg: “You’re dealing with people during the decumulation stage of their lives – where they often need to scale down quite radically. Not only must advisors understand that this can be traumatic for their clients, but that they may need to convince their clients to plan for a life span well beyond what those clients had envisaged in their heads.”

Speaking at the first workshop, psychologist Dr Hannetjie van Zyl-Edeling (author of Over the Moon – a Guide to Positive Ageing”), noted that people were now easily starting to live 35 years or more beyond retirement. This, in itself, could be a terrifying concept for clients to grasp: “They will worry about: ‘How do we find the resources to fund this and how do we make this time in our lives meaningful?’”

In many respects, this would mean broadening the horizon beyond traditional avenues of planning, including how and where retirees will want to live, and what their own priorities are in terms of living comfortably and ensuring that they will be taken care of.

“For example, in many ways, we’ve evolved significantly from the traditional family,” noted speaker Arthur Case, Brand Marketing Director for Evergreen Lifestyle Villages, which – together with its shareholders, the Amdec Group and PSG Group – provides retirement villages across South Africa exclusively under the life right option.

“In the past, you tended to have extended families, children and parents living in close proximity to, or with each other, with a network of care in place, but these days we often see children living in other parts of the country, or even abroad. The nuclear family these days usually excludes Granny and Grandpa who need to find their own retirement living solutions.

“Values are also vastly different – baby boomers, the oldest of whom are now in their early 70,s have very different values to their parents. This means that retirement places designed with their parents in mind will be unattractive to the boomer. They are looking to extend their independence, enjoy youthful activities and enjoy a lock-up-and-go lifestyle.

These, believes Case, are some of the compelling reasons why the marketplace began to swing towards life right options, transforming the traditional belief in buying only into sectional title schemes: “A life right is, in many ways, like buying a life insurance policy; it will not increase in capital value the way a sectional title property will, but it guarantees purchasers a home for the rest of their lives, at a cost they know from the get go they can afford.”

Part of understanding the financial commitments that would be required in retirement was also to understand that needs would change over time, should one half of a couple pass on or should the retirees wish or need to scale down even further.

“Again, life right meets this need as it enables people to change their options at a time of their lives, particularly when the last thing they need to be stressing about is selling a property,” noted Case.

There are also misconceptions around life right options, with the belief that they provide nothing to an occupants estate when those occupants passed away.
Explained Case: “In all legitimate life right schemes, the estate will always still receive an agreed percentage of the original purchase price, ensuring that the life right has legacy value.

“But more than anything else, it’s a product that gives peace of mind to someone who is retiring about what will perhaps be their greatest concern – where will they live and how will they be able to afford it.”

A full understanding of the value that this offers clients, along with an understanding of the overall psychology of retirement and decumulation, these are powerful tools for any financial advisor to have in their service offerings.


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