Marc Ashton
2 minute read
12 Apr 2014
7:00 am

Save until your kids are … 50

Marc Ashton

Recently Moneyweb contributor Magnus Heystek wrote an interesting piece on retirement.

Image courtesy stock.xchnge

I came across a fascinating story this week that could support this further, suggesting that trusts for children not be accessible until they are over the age of 50.

Heystek took issue with retirement planning advice often dished out by young journalists, who are without “real life experiences in the real world”. He suggests that retirement planning advice not be taken from anyone under the age of 60 and believes that unless you are very wealthy retirement is not going to be golden.

Recently I had lunch with a CEO of a JSE-listed financial services company who told me a fascinating story of a new client he had recently acquired.

Forty years ago, two parents put R15 000 (ballpark) into an investment trust for their daughter. Three weeks later they were killed in a car crash.

Interestingly, they had set very explicit instructions for this

money for their daughter. The trust established would hold this investment until she turned 50. Not a day before.

Tough break!

Ten years ago, when the daughter turned 40, she began to quite aggressively attack the trust hoping to unlock the R7 million which had accumulated.

Try as she might, she could not break the rules of the trust and she was left to stew for another ten years before she could get paid out. This turned out in her favour because by the time she was eventually paid out, the investment amount had risen to nearly R25 million.

In speaking to the aforementioned CEO, she made the point that had she been paid out the R7 million, she would have promptly bought a fancy house and a fancy car and been left with very little for actual retirement. Even at 40, when you should probably know better, the allure of spending a big chunk of money is enticing.

R25 million became a game changer.

A few of us were discussing this internally and we observed that apart from a comfortable retirement, she would be able to pass on this wealth into the next generation because she would be unlikely to spend all R25 million. This also potentially sets the next generation up for life.

As a parent, it is a fascinating change in thinking. We often buy into this idea that we will give our 18 or 21-year-old kids a “gift” of a couple thousand when they hit “coming of age”, but imagine if that gift could be millions… as long as they were patient.