Momentum Wealth - Retirement Reimagined

BLUE
CHIP
RETIREMENT
REIMAGINED
Retirement success
Portfolio management
Innovative thinking

Reimagining retirement planning
with innovative thinking
Often, innovation lies in thinking differently about how we use things we
already have in new ways to make life easier. How we have changed our
thinking about retirement income planning and how we keep reimagining
retirement is a testament to such innovation.
The innovative way in which we “created” a new or alternative asset
class to significantly enhance income planning during retirement will
enable some of or all the following outcomes for clients:
· Protect a certain future income stream
· Enable capital growth
· Sustain income for longer during retirement
· Manage inheritance needs
What is it, and how does it work?
In 2022, we enhanced our living annuity product, the Retirement Income
Option, on the Momentum Wealth platform to help people better
structure their retirement income plans. They no longer have to choose
between the certainty of a life annuity and the flexibility of a living annuity
– they can have the best of both in one retirement income solution.
By allocating a portion of their retirement savings to a life annuity
component within their living annuity, people can personalise their
income plan by deciding:
· how much of their retirement savings they want to use to cover their
essential “life expenses”; and
· how much they want to use for their more flexible “living expenses”.
This product enhancement helps people make more informed decisions
about their retirement income planning. They can choose to allocate a
portion of their retirement money to the Guaranteed Annuity Portfolio,
which will pay a guaranteed income for as long as they live. At the same
time, they have the investment flexibility to benefit from potential growth
from investment markets and the possibility to leave a legacy, all in one
living annuity.
The Guaranteed Annuity Portfolio is a life annuity, which is
available as an optional investment component to clients starting a
new Retirement Income Option or who already have a Retirement
Income Option.
We are now also equipping financial advisors with a state-ofthe-art
income illustrator to show different income scenarios to help
clients choose the most suitable structure for their unique income
needs and circumstances. The income illustrator brings together a
set of multi-dimensional skills from various departments such as our
Martin Riekert, Head of Retail Investments, Momentum Investments
investment management teams, our economists, the actuarial product
development team and our research unit known as the Research Hive.
The merging of these disciplines into an easy-to-use illustration tool
will aid financial advisors in providing holistic retirement advice in a way
no one has imagined before.
Momentum Wealth offers the most comprehensive range of
investment and product solutions to implement clients’ retirement plans
effectively and efficiently, from saving and investing towards retirement
to generating an income during retirement.
By blending the best of both worlds (the income certainty of a life
annuity and the investment flexibility of a living annuity), we are partnering
with financial advisors to help clients:
· Make better decisions about structuring and implementing suitable
income solutions when they retire.
· Optimally manage their income during retirement to cater for changing
income needs.
Each person’s investing journey is unique and personal. With us, you can
shape that journey in the most singular way.
Talk to us to find out how you can elevate your expertise when advising
your clients about planning their retirement and guiding them on their
journey to success.
For more information on how we’ve reimagined retirement, visit
momentum.co.za.
Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider
(FSP 6406). The Retirement Income Option and the Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer under the Insurance Act and
administered by Momentum Wealth (Pty) Ltd. The information in this article is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial
Advisory and Intermediary Services Act, 2002. Momentum Investments does not make any express or implied warranty about the accuracy of the information herein.

Your “factory settings” may be an important
part of your retirement success (or lack thereof)
Making an investment decision — like switching between different
investment funds — at the wrong time can cost you money. We call this
the “behaviour tax”. Often when markets become turbulent (both up
as well as down), we struggle to make the right decision and instead
make the comfortable one of moving to what we think is
a place of safety. This “comfortable” decision cost
investors in retirement nearly R500 million in
“tax” during the Covid-19 pandemic, as they
sold out after the market crash and then tried
to get back into markets after it recovered*.
During the pandemic, 75% of value
destroyed was from those in retirement and
after the pandemic in 2023, 65% of value
eroded was from investors in retirement.
Using machine-learning algorithms, we
confirmed that both age and the size of the
investment portfolio are two of the biggest
predictors of switching behaviour.
Our reaction to market movements is part
of our personality or “factory settings” because of
how market behaviour makes us feel. Our personality is
a collection of thoughts and beliefs about the way the world
of investing works. We call these factory settings as research shows
that approximately half of our personality can be directly traced to our
inherited genetic code.
Two important personality traits or thought patterns determine these
factory settings for investing and may be linked to the behaviour tax.
The first is our preference for now compared to later. In the Stanford
marshmallow experiment, kids were offered the choice to eat one
marshmallow now or hold out for 10 minutes to receive a second
marshmallow. This doesn’t seem long, but 10 minutes is a lifetime to
a five-year-old waiting for a sugary treat. Some kids were just better
than others at this game because they had different factory settings.
Subsequent replications of the marshmallow experiment showed that
successful kids were able to shift their attention away from the treats (like
staring at the corner of the room) or distract themselves by thinking of
other things. Interestingly, this refers indirectly to the concept of “flow”, or
rather our perception of time when we are doing or thinking about things
we like. The personality trait of conscientiousness refers to those of us
who are naturally good at focusing on the future and reaching our goals.
The second personality trait or thought pattern is our general level of
anxiety or neuroticism. Some of us are wired to worry a little more than
Our reaction to
market movements
is part of our
personality or
“factory settings”
because of how
market behaviour
makes us feel.
others. Being more anxious can result in an investment choice which
makes us feel better now by acting and moving our money to “safer”
asset classes during market turbulence. This is referred to as the actionoriented
bias (just “do something”). This behaviour often results in the
behaviour tax because inevitably, we miss the market recovery
and get stuck in the wrong place at the right time when
markets recover, and they always do. Having low levels
of neuroticism makes us more composed in the face
of uncertainty.
It is important to note that no set of
personality traits is deemed better or worse.
There are, however, better and worse settings
for any given situation. For example, having a
spontaneous and impulsive partner can mean
fascinating life experiences but left
unchecked (without the right
plans and strategies) these
same traits also may result in
poor investment outcomes.
This is where self-awareness
can make a difference. Incorporating
the Guaranteed Annuity Portfolio (GAP) as an
investment component in your retirement
portfolio can improve retirement
outcomes by adding much-needed
certainty to retirement income
planning and even enhance
these outcomes in given
circumstances. Knowing
your factory settings and
implementing investment
strategies (like using
the GAP) can be the
difference between a
behaviour dividend and
a behaviour tax.
*Source: Momentum
Investments Sc-Fi report,
November 2023
Paul Nixon,
Head of Behavioural Finance, Momentum Investments
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit
(NCRCP173) provider.

The ABCs
of retirement portfolios
Clients invested with an asset manager will have exposure to asset classes
such as cash, bonds, property and equities, both locally and abroad.
These assets create their performance through beta (B), which is the
return generated by the market, and sometimes through alpha (A), the
performance through superior stock selection.
Yet, alpha and beta come and go as no asset manager can always
outperform or guarantee to do it when clients need it most. So, if A and
B can’t always do it, what about using C?
Here, C refers to credits. More specifically, mortality credits. Mortality
credits are the benefits clients get from a life annuity because thousands
of annuitants invest with the same life insurer and their mortality risk is
pooled. This pooling is the foundation of how a life annuity is priced so that
the exact rand amount of income is quoted. It is because not all clients
will get the same value for money as they won’t all live to the same age.
Some clients live longer than expected and receive an income stream that,
when added together, could be six times or more than what they originally
invested. In these instances, the income can have an implicit return or internal
rate of return (IRR) of more than 14%. On the other end, clients may receive
less than what was invested.
Life annuities will give a different return to different people, but the
return is the highest when it is needed most, irrespective of how the future
returns from markets turn out to be.
A 65-year-old client who needs 9.6% to maintain his increasing income
needs for 15 years will need 12.6% to maintain it for 35 years.
Years of retired life 15 25 35
Return required before fees* 9.6% 11.9% 12.6%
Clients who live longer in
retirement need the high
returns the most. This is
exactly what a life annuity
offers. It offers a higher
return the longer a client
remains alive.
This rate of return will vary
on a case-to-case basis, but
long-term returns approaching
14% and even 14.5% are not out of
Martiens Barnard, Marketing
the ordinary when clients get the full
Actuary, Momentum Investments
benefit of mortality credits by living to an
advanced age.
Momentum Investments has expanded the choice of components that
can be selected in our living annuity. We now offer a Guaranteed Annuity
Portfolio (GAP) – a life annuity as a component within our living annuity.
By using Momentum Investments’ GAP, you can provide a market-linked
return as well as a return that increases with the client’s lifespan.
We have also launched our Income Illustrator. This is Momentum’s
way to help advisors understand the potential effect of adding a GAP
to the investment portfolio of new and existing living annuity clients.
The Income Illustrator provides cutting-edge technology that simulates
thousands of scenarios of market realistic returns. These simulations
give insight into what income and capital values are reasonable to expect
when adding different levels and variations of a GAP to a living annuity.
This is how Momentum Investments makes investing personal.
The return from a life annuity
15%
12%
%
6%
3%
0%
74 75 76 77 78 7 80 81 82 83 84 85 86 87 88 8 0 1 2 3 4 5 6 7 8 100
Calculations based on a R1-million life annuity for a male aged 65, which pays an income of R8 010 every month escalating at 5% every year. The
return for periods Calculations shorter based than on 74 a years R1 million is negative. life annuity Source: for a male Momentum aged 65, which Investments, pays an income November of R8 010 every 2023. month escalating at 5% every year. The
return for periods shorter than 74 years are negative.
Momentum Wealth (Pty) Source: Ltd (FSP Momentum 657) is an authorised Investments, financial date services of provider. quote Nov Momentum 2023. Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider
(FSP 6406). The Retirement Income Option and the Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer under the Insurance Act and
administered by Momentum Wealth (Pty) Ltd. The information in this article is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial
This rate of return will vary on a case-to-case basis, but long-term returns approaching 14% and even
14.5% is not out of the ordinary when clients get the full benefit of mortality credits by living to an
Advisory and Intermediary Services Act, 2002. Momentum Investments does not make any express or implied warranty about the accuracy of the information herein.