Three myths of financial planning debunked:

One of the myths of risk planning is that policyholders will earn a steadily increasing income until they reach retirement age. Joseph Booysen reports

THREE long-standing myths in the financial services industry were debunked by some of the industry’s top thought leaders at an event for financial advisers hosted in Cape Town last week by life assurer FMI.

The leaders included the founder and chief executive of Cannon Asset Managers, Dr Adrian Saville; industry actuarial legend Rob Rusconi; and FMI chief executive Brad Toerien.

Rusconi told the audience that investment and risk planning are inextricably linked, and many outdated assumptions drive financial planning.

He told the advisers that their customers have a complex mix of needs, and therefore the risk expert has to understand the investment context and the investment expert has to understand the risk context.

In his presentation, Toerien said: “We tend to put risk planning and investment planning neatly into separate boxes, when, in reality, they do the same thing.

“Risk planning is about protecting you from the financial consequences of bad things happening so that you are able to accumulate wealth, and investment planning is about protecting and growing that wealth so that you can continue to earn an income at retirement. In many ways, they’re both about protecting your income,” he said.

Toerien challenged three common myths that drive much of today’s financial planning.

The first myth is that policyholders will continuously earn an income that will steadily increase until they reach retirement.

“The reality is that you have a 70% chance of having an injury or illness during your working career that could affect your ability to earn an income. So, not only is there a high probability that your income will be interrupted, but there is no way to guarantee that it will increase steadily year-on-year,” said Toerien.

The second myth is that policyholders know exactly how much they will need in retirement. The reality is that we don’t understand how much we need and don’t take costs, such as higher medical expenses in retirement, into account.

“The third myth is that you will retire at 65 and live until 90, when, in reality, most people can’t afford to retire at 65, or simply don’t want to. Individuals are also living longer, healthier lives with higher life expectancy, which means post-retirement money needs to last longer.”

Your greatest asset is your ability to earn an income, and all insurance benefits should be designed to protect this.

Toerien said the best way to do this is with a life assurance product that provides a monthly income and a lump-sum benefit in the event of temporary or longterm disability, critical illness or death.

Saville shared the wisdom he has gleaned from 20 years’ experience in the industry: “The world in which we live is filled with myths, and those myths lead to fear, greed, uncertainty, the pursuit of Holy Grails and non-existent pots of gold, and some people who never venture anywhere for fear of going off the edge of the Earth. [Financial planning] is about ensuring your 70s and 80s are successful and effective, and that we can reward ourselves with the quality of life that we can afford.”

joseph.booysen@inl.co.za