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Is Your Legacy Savings Policy Recession Proof?

By Phomolo Dube, 22 November 2018

The weakening economy has put discretionary spending under severe strain during 2018 – and some of our legacy policyholders may also be questioning their investment choices and retirement strategies. In this article, Phomolo Dube, Chief Executive of Sanlam Closed Book, discusses the value that Sanlam’s older generation products offer in times of market turbulence and economic uncertainty.

A downturn coupled with high uncertainty, like the one we’re experiencing right now, is not the time to make any rash decisions that could impact your retirement savings or other long-term financial goals. In fact, if you have a legacy retirement annuity or endowment with Sanlam, your policy shows its worth during times like these, by providing peace of mind that your savings and investments are largely protected against market volatility.

Riding out market variables

A substantial proportion of retirement annuities, endowments and other savings instruments in Sanlam’s legacy product range have an underlying investment in Smoothed Bonus Funds.

This means that members benefit from regular bonus declarations that are based on the returns achieved on the portfolio’s underlying investments. To introduce stability, Sanlam builds up surpluses during periods of strong market growth so that a portion of the returns can be set aside for rainy days. These surpluses are then used to bolster returns during periods of weaker performance. This smoothing mechanism provides consistent and reliable investment returns – mitigating the volatility risk that has, during this year, given many people invested in market-linked portfolios grey hairs.

When life has its own plan

This smoothing effect reduces legacy policyholders’ exposure to short-term market turbulence. It therefore lessens the risk of investing in or disinvesting from the market at the wrong time due to circumstances that the member has no control over, such as retrenchment, illness or the arrival of retirement age.

When you’re building up your wealth for retirement or investing towards one of life’s big milestones, this is typically a long-term commitment, over decades. There is no crystal ball that’s going to tell you how the markets will be performing when your policy matures, or the time comes to invest in the life goal you’ve been saving for.

Because you can’t predict the future, Sanlam’s legacy products give you the comfort of stable returns, regardless of market conditions.

A challenging year, perhaps an opportunity to reflect

The past few years, and 2018 in particular, have been gruelling for South Africans financially. The constant rise in the cost of living and the feeling of uncertainty is putting tremendous pressure on many of our clients. We understand that some people panic and make rash decisions to cancel or cash out their long-term savings policies in order to cut back expenses or access extra funds during unexpected life events. However, times like these call for forward-looking financial planning. Retirement annuities, endowments and other similar savings products are long-term investments, so it’s not always beneficial to make hasty decisions based on current circumstances, but rather think long term.

A challenging year like 2018 has forced many of us to take hard look at our finances, but this should not be the only time we reflect on our financial goals. Financial discipline needs to be an ongoing exercise – good-old habits like budgeting; setting aside some funds for a rainy day need to be part and parcel of our everyday lives.

It’s easy to take a short-term view and cancel – or chop and change – your policies in an attempt to save money now. But what about the future? The more time you spend investing towards your retirement and the legacy you’ll leave for your family, the greater your benefits will be. The longer you stay the course, the more you’ll benefit from the power of compound interest, which is what gives you the best opportunity to grow your wealth.

Albert Einstein is said to have once called compound interest “the eight wonder of the world” and “the most powerful force in the universe” – and I wholeheartedly agree with him.

Evaluate your financial goals

That said, if you really do run into financial issues and you need to re-calibrate your financial plan, it’s important to consult a professional financial advisor who can help you to understand your options and ensure that you’re getting the best value for every hard-earned rand that you save.



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