Most people in Mike Smith’s shoes would think they had done pretty well; he thinks he could have done better ... even if he did achieve his long-held ambition to retire by the time he was 55.
While he describes that plan as “very ambitious” he certainly can tick many of the boxes that turn ambition into reality, such as starting young and staying focused. If he had his way everyone would start young, and not just by chance.
“I think investment/retirement planning should be introduced at schools in the form of investment games and share trading competitions,” he says.
Mike started planning for retirement shortly after completing his Electronic Apprenticeship, which involved repairing and refitting electronic equipment on submarines at the Naval Dockyard in Simonstown. As soon as he could afford to, he invested in an RA with Sanlam. “I think I started paying R50 a month in 1982,” says Mike.
A couple of years later, he took out an Endowment Policy “as a long-term forced savings vehicle”. With the benefit of hindsight, Mike says, that was not such a good idea, “considering the commissions I must have paid!” In those days, he says, “they gave you projections and figures based on various inflation scenarios, which all looked fantastic on paper”.
Anyway, he adds, when you are 23 years old, retirement looks like it’s a century away and there is plenty of time to figure out a plan. But life changes fast, as does the world.
“Back then, both Sanlam and Old Mutual were mutual companies, where all the investment returns were used to increase the value of the Endowment and RA policies they sold,” says Mike.
In 1983, the property market had just started to grow rapidly and Mike bought a plot of land. He paid R20,000 for it, putting down a R5,000 deposit, and sold the plot a few years later for R50,000.
“Fortunately, at this time, I was still living at home with my parents. I was paying off a car and a plot, and quite frankly couldn’t afford to leave home.”
Mike left the government service in 1984 and started working as a computer technician. The computer industry was a lucrative one to be in, but it was volatile. Contracts typically lasted two or three years and then went out to tender again.
“So you were never sure how long you might be employed. Changing jobs and getting retrenched became the norm, which was rather stressful,” says Mike. “I soon realised that in this type of industry there was no prospect of working until retirement age, so I had better take care of my own retirement plan.”
Also, Mike says, his father’s pension was with Transnet, and he describes his retirement as “challenging”.
“If you know the story about that, it’s not pretty, and there is still a class action taking place with regards to poor investment decisions,” he says. “There are plenty of horror stories, of elderly people who have run out of money after drawing down too aggressively on their investments over the years, and family members having to augment their pensions.”
During his time in the IT sector Mike maintained computers and servers at various financial services companies, which led to him becoming more interested in investing. He mentions Syfrets Trust, “a unit trust management company with plush offices in St George’s Mall, Cape Town”.
He adds: “A group of investment managers and staff left Syfrets and formed Coronation. As they say, the rest is history … My greatest regret is not investing in Coronation when they listed!”
Things started to look better financially for Mike around 1987, a year after he had met the lady who was to become his wife, and they decided to build a house. They are still living in that house today, quite a few changes and renovations and two children (now grown up) later.
Mike says that he and his wife have always been very careful with their money, and have invested widely. He notes that he has always been keen to avoid making banks or financial advisors rich, and pays cash for virtually everything.
“We buy cars and even houses cash, thereby avoiding bank finance charges,” he says.
His irritation encompasses the wider financial services industry. “It really infuriates me that policies attract commission fees for life. It is daylight robbery! You only have to look at financial institutions’ offices to see where they spend your hard-earned money!”
Mike doesn’t pull any punches. “I think up until a couple of years ago, the South African public had been held to ransom by a cartel, using anti-competitive fixed fees and exorbitant commissions. It is a breath of fresh air that companies like 10X have brought competition to the marketplace to fight for the consumer.
“I would hate to know how much I have lost to commission in my lifetime. It’s always a concern when you go to an asset management company and they recommend a particular unit trust to invest in. It’s difficult to know whether it’s really a good investment, or does the advisor get a better commission from that company?”
He adds: “Finally the consumer has somewhere to go where they won’t feel ripped off every time they make an investment in their retirement.
“10X is innovative, creative and disruptive and is showing the old established brands how to do business in the modern online environment.”
As the Smiths improved their understanding of investments and built up their savings they were able to invest a little offshore and bought a second property, where they still have the original tenant after 15 years. Later, Mike says, they bought a third property in Stellenbosch, where their sons both went to university and completed their Masters degrees.
Now that his sons have finished their studies, the Smiths will be renting the property out to other students. This investment, which will now provide a source of income, “has saved me about R500,000 in rent”, says Mike. He does all the maintenance and management himself to keep a close eye on things and to save money.
“I don’t profess to have all the answers to retirement planning, but one thing I do know is that you must take charge of your own financial planning. Start as early as you can to build a retirement nest egg. Don’t leave it to your company’s pension/provident fund; that will never be sufficient to see you through retirement,” says Mike.
“What I appreciate about 10X is the transparency and disclosure of fees, unlike other companies who try and sneak them past you.”
Mike adds what “really got him” about 10X is “the way you seem to appreciate the fact that the exorbitant fees that most of your competitors charge are really not helping to build up your retirement savings, but facilitating a lavish lifestyle for investment companies”.
“The things you cannot predict in life include how long you are going to live and how much income you will require to sustain your lifestyle during your remaining years. I think that must be a concern to everyone approaching retirement. In hindsight, if we started our career with this mind-set, we might have started investing for retirement a lot earlier and with greater commitment,” he says.
Mike went into semi-retirement at 54; his wife is still working.
“Fingers crossed, our financial planning over the years will enable us to see out our retirement in relative comfort. Like everything, it is a work in progress!