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A review of The Psychology of Money by Morgan Housel

Reviewed by Karen Wilson

Morgan Housel provides some sage commentary on how our behaviour affects our financial outcomes. Our individual worldviews, the times we’ve lived through, and our experiences invariably colour the investment and spending decisions we make.

He cautions against trying to duplicate another individual’s path to success and advises that people rather focus on broad patterns of success. For Housel, this translates simply to living below his means, not succumbing to greed or rampant materialism to impress others, maintaining risk at a level that lets him sleep at night and trusting compounding to do its work over the longest time possible. He illustrates his points with true stories, including one about the (mis)fortunes of Richard and Ronald. One man was Harvard educated, had an MBA and retired early from an executive position with a prestigious firm. He borrowed heavily to expand one of his showpiece homes – with eye-watering monthly maintenance costs. The other man held two lowly jobs his entire working life, lived in the same 2-bedroom house, and invested the little he could save into blue chip shares over several decades. One man slid into bankruptcy after the 2008 financial crisis; the other died in 2014, leaving $8 Million. These are extreme examples, but they make his point.

The author asserts that money is governed by odds and not certainties, therefore everyone should “Plan on your plan not going according to plan”; things do go wrong because of unforeseeable events or risks (there is a quirky little anecdote about field mice vs German tanks in the book), so have a margin of safety. He advocates a life-long savings habit, even if you are not saving for anything specific, because enough money will give you options and flexibility when you need it.

Some other takeaways from the book: Luck and risk are both real and hard to identify; Less ego, more wealth; Define the cost of success and be ready to pay it – because nothing worthwhile is free. The book is an easy read, with mention of many well-known figures – including a few financial felons. And on the topic of luck, would Bill Gates be where he is today if he had gone to a different high school? Read the book, and you decide.

A copy of The Psychology of Money by Morgan Housel is available in our Chartered Client Library.

Freehold Title, Sectional Title or Life Rights – what’s best for you?

When considering moving into a retirement village or estate, understanding the different types of ownership is essential before deciding what’s best for you.

  1. Freehold title
    Freehold or full title describes the transfer of full ownership rights when you own a property, including the building and the land on which it is built. These kinds of properties include free-standing houses, cluster houses, residential properties used for business purposes, and smallholdings. The freehold owner is responsible for all the bills and maintenance of the property, including taxes, insurance, upkeep, security, electricity and water bills. In addition, within gated communities like retirement estates/villages, there will be a monthly levy to cover services such as maintenance of the common areas, security, catering and healthcare. Some developments will retain a certain portion of the profits on resale to subsidise the levies owners pay.

  2. Sectional title
    Sectional title describes separate ownership of units or sections within a complex or development. When you buy into a sectional title complex, you purchase a section or sections and an undivided share of the common property. This is similar to a sectional title in a non-retirement development, where a monthly levy funds rates, insurance and maintenance of the complex. The scheme will have a board of trustees and a body corporate, through which all owners have a say in decision-making. As with a freehold title scheme, the developer carries no responsibility for the ongoing maintenance and cost management aspects once the development has been built; the onus falls on the owners or residents to do so.

  3. Life right
    You buy the right to live in a dwelling for your life and that of your spouse – you don’t own physical property. There are no legal costs, transfer duties or other taxes payable. You may dispose of your life right, or it will be sold on your death, in which case you or your estate will, depending on the contract, receive the purchase price plus a percentage of the profit. When a life right transfers to a spouse on the death of the first-dying spouse, it does not form part of the first- dying spouse’s estate. Residents, who pay a monthly levy to cover running costs, enjoy similar privileges to those in sectional title homes; the developer, however, remains the sole owner and is responsible for the upkeep of the village.

Watch Kim Potgieter in conversation with Rob Jones from Shire Retirement Properties discussing the different options. Rob founded Shire Retirement Properties in 2010 in response to a clear need for independent specialist consultants in the South African retirement industry. For more information, visit Shire Properties.

Where should I live- taking yourself with you

A few years ago, I read this comment, which resonated with me, “When we question or think about where we will live in the next season of life, be reminded that happiness is an internal process, and we can be happy wherever we are if we have done the inner work”.

As a retirement life coach, the question of downsizing, buying into a retirement estate or staying where you are, is one I am often asked. It is one of the biggest financial decisions we make in this season of life, so it can’t be taken lightly.

Each person is unique, and circumstances differ for each of us. Here are some questions to consider and tips for making this decision.

  • Be clear about why you want to move and what options you would like to investigate.
  • Ensure that you and your partner agree with the options.
  • Discuss the possibilities with your Retiremeant™ Specialist
  • Are you ready to let go of some of your possessions and downsize?
  • Understand the different legal offerings.
  • Life Rights is a long-term lease with many benefits, but not all contracts are the same. Read carefully and understand the pros and cons.
  • If the possibility exists, experiment by selling your primary residence and renting in an area to ensure you are making the right decision. Many people have a romantic illusion about living at the coast, only to find it’s not for them.
  • Ask yourself the question about friends and family as these relationships form part of your life in a more profound sense during this season of life.
  • Analyse your current living costs versus the levies you will be paying.
  • We are living longer than our parents’ and grandparents’ generation. Are you looking to have two seasons in the same place? Firstly, as a lock-up-and-go and then settling into a community lifestyle supporting you as you age.

I sold my home and moved from Hartbeespoort Dam to Somerset West in late 2020. I decided to rent in a Retirement Estate so that I could understand the culture and the complexity of this move at this stage of life. I am 65, still working and wanted a lock-up-and-go environment, a safe place to sleep at night and an opportunity to experiment living in a new city and community. I have appreciated the support of the staff in finding highly recommended service providers and having access to some of the readily available support services like a laundry, a clubhouse, fibre, gardening, and cleaning. I live a full life outside the gates of the community but value the support of the staff in the community. The move was not easy, the early days were a challenge, especially since I knew no one, but I made an effort to treat this as an adventure and push through. Change gets harder as we age, so don’t leave it too late. I am happy I moved out of my comfort zone and into a wonderful new adventure, and I look forward to many more happy years ahead in the Cape.

Retirement Estates – Understanding your options

One of the major decisions people face when retiring is where they will live. The decision to move is an emotional one, especially as many people have lived in the same house for years, raising their families, so the thought of moving seems like severing ties with an old friend. Making the decision to move is often spurred on by health reasons, high maintenance costs, the desire to relocate to a different province, or the need for property equity to fund their retirement income.
Once the decision is made, many of our clients opt to move to retirement villages or estates. The traditional concept of retirement villages and estates has changed dramatically over the years, and the range of lifestyle activities and easy access to medical care and security now makes them an attractive option.

When deciding to move into a retirement village or estate, where applicable, one needs to decide on the form of ownership. The pros and cons of an outright purchase versus life rights and the long-term impact on one’s financial plan must be carefully considered.

There are upsides and downsides to both. Investing in a sectional title property allows an individual to remain in the property game. Life rights is an investment in a retirement development, which guarantees the holder a safe and secure home for the rest of their life. In the case of couples, the right to use the unit ceases upon the death of the second spouse or partner, and this right is inalienable.

There is often confusion about the differences. A Life Rights scheme differs from a Sectional Title or Full Title property in that ownership of the property is held by the Life Rights scheme owner/operator. Even though legal ownership of the property is not transferred to the occupant, a Life Right is sold under a secure legal framework, which essentially provides the occupant with all the legal protections of full ownership of the property during their lifetime.

Clients are often initially hesitant to consider Life Rights as they are concerned that it will be financially detrimental to them or their heirs in the long run, as units cannot be inherited. However, often after running the numbers, it becomes apparent that this is not necessarily the case. Because purchasing into a Life Rights scheme does not involve any transfer of property, no bond registration, transfer fees or VAT is payable, meaning there are very few cost barriers to entry. While residents of a Life Rights scheme enjoy similar benefits to sectional title owners, they have the added advantage that the developer remains the sole owner of each unit and therefore carries the responsibility for maintenance and upkeep.

Life rights are regulated in terms of the Housing Development Schemes for Retirement Persons Act 65 of 1988 (HDSRP), which also stipulates that the minimum age for purchase of Life Rights is age 50; however, some schemes have a higher minimum age. The terms of your life rights contract are extremely important, especially regarding the terms of re-sale. Your life rights contract must state what percentage of the purchase price will be paid to your estate in the event of death, bearing in mind that terms vary significantly from development to development.

Some schemes can include a refund of your initial investment plus a percentage of the profits on re-sale, while others provide for the repayment of a percentage of the purchase price.

The decision of if, when and where to move is hugely personal, and there is no one-size-fits-all approach, so we strongly encourage clients to start having this conversation sooner rather than later. Due to their increased popularity, Life Rights schemes often have a long waiting list. Some retirement villages and estates have an upper age limit, and some don’t offer the option of an outright purchase, so research is essential in finding what works best for you to ensure not only your return on investment but also your return on lifestyle.

Please get in touch with your Retiremeant™ Specialist if you have any questions or would like to explore your options further.

Where will you live in retirement?

You may not be ready for this conversation at all. Very few of us are. In fact, most clients I talk to dread this conversation. It conjures up the exact opposite of how we feel. We are human. We are all different, and we approach our thinking and planning differently. But having a plan for living on your own terms, in a place you choose, without having to depend on family to support you, will give you comfort and one less thing to worry about.

As part of planning your next chapter, I usually bring the topic of ‘where you see retirement villages in your plans’ to the table after age sixty – and it is not always well received. I am often told ‘absolutely not!’ Many clients have lived in their family homes all their lives. Home is where our memories are kept, our happiest moments are held, and our life stories are told. It’s an emotional decision and a very personal choice.

Because of their experiences looking after elder parents, some clients are apprehensive of becoming a burden to their children and are more willing to talk about it. But not now -when the time is right. In many conversations, I find one partner willing to consider the move while the other is against it.

There is no right or wrong answer. Where and how you will transition is ultimately up to you and how you see yourself living in future. To guide your conversations, I have put together the most important insights I have learnt from talking to my clients:

  • If you choose to move into a retirement village, don’t leave it too late. Make sure you have enough energy to pack up your home and enough vitality to make new friends. I have a client whose wife suddenly fell ill, and packing up all their belongings and memories alone turned out to be a very traumatic experience.
  • Do your homework and research your options well in time. None of us wants our adult children to decide where we should live.
  • Consider a life right property if you don’t have huge capital. Retiremeant™ Specialist Jason Appel wrote a very informative article in this newsletter explaining this option.
  • Moving house can be expensive with many costs: transfer, agent, packing and moving fees etc. But there is also an upside to downscaling. Living in a retirement village may also mean saving on rates and taxes, security, maintenance and living expenses. Consider your options and talk to your Retiremeant™ Specialist about the financial impact.
  • Consider allocating money for carers to assist you (if needed) when you decide to live independently or with your adult children.

We are all different. Don’t mould yourself into a living arrangement that does not suit your lifestyle – or your values. I have clients who long for a peaceful, quiet life out of the city, and other clients who feel rooted and comfortable exactly where they are. Some clients choose to emigrate or semigrate. Lynda Smith, who contributed to this newsletter, moved to a different town and has found immense joy moving from her comfort zone to a brand new adventure.

You may also find that you and your partner think and plan differently. Your timing may be off, and you may disagree on where to live. Don’t get impatient with each other, and keep the conversation flowing. Take the time that’s needed for both of you to feel comfortable and valued in the process.

Thinking about this transition also does not mean you have to move right now. It really is just about having a plan. Do the research, discover your options, explore possibilities and weigh the benefits and pitfalls. And above all else, make sure you are always surrounded – and interacting – with new friends and the people you love.

Make sure the road you travel and the home you choose are where you feel you belong,