I have always been a compulsive reader.  I read a lot on a variety of subjects.  In fact, if I get interested in a topic, I will read anything I can find.  One of the books that fit in with The Blue Roof is “The Art of The Deal” by Donald Trump.  From Monday I am going to share with you the quotes that I have written down when I read the book a few years ago.

I want to end this week by sharing with you why I DO NOT LIKE ENDOWMENT, or SAVINGS POLICIES.

Before I do that, please read the following sentence very carefully:  Any saving is better than no saving, even an endowment policy is better than nothing!

One of the big insurance companies advertises the following in magazines:

The illustrate monthly savings for 10, 15 and 20 years with a illustrative maturity value at under a low and high inflation rate, respectively.  One assumption is that the monthly premium increases at 6% per year.

What I have done is to change the monthly premium to annual, I calculated the IRR, the present value of the illustrated maturity value, and the actual amount invested.  This is what I got:

10 Years Low Inflation

10 Years High Inflation

15 Years Low Inflation

15 Years High Inflation

20 Years Low Inflation

20 Years High Inflation

If you have a question, please comment.  I it is nice to hear from you.  I appreciate your comments.

For a couple of days now, I have been telling you how you can easily do your own financial calculations.  And when you start calculating, it becomes very scary.  Now let me share the scariest fact of all:

If you retire today, with the assumption that inflation = investment return, and that your income will increase by the inflation rate for 20 years, that is 240 months, what happens in month 241?

You will have no money left.  Let me repeat that:  you will have no money left.

Assumptions:

Required initial income is R10 000 per month for 20 years.  Income and capital grows by 6% per annum (inflation = investment growth rate).  That means that I need R10 000 X 12 X 20 = R2 400 000 in capital

Look at the table below.  After 20 years (in the Table Year 19) I run out of capital!  So what are you going to do in month 241?

Understand the Table.  At the beginning of year 1 I take out R120 000 for my first 12 months income.  I invest the balance.  Beginning of year 2, I take out what I need and invest the balance.  And I carry on like that.  In year 19, I only have available exactly what I need for the year.  Do I hear somebody say:  “I will earn interest on the money for the year.”  I hope you do, but the effect is negligible.

How many people do you know or know of, who, a couple of years ago took a severance package, or who retired and are now working again, because they obviously have to?  In all probability, this is the reason.

Or as the Financial Mail article said:  “The luckier retirees live off alternatives such as rental income, or their children. Others don’t even have those resources.” Read it here.  So there is the answer and the solution!  You have a choice:  invest in property or have children!