Why key life moments are the best time to review your finances
A financial plan isn’t a document you sign once and file forever. It’s a living plan that should move with you through life. Many of the biggest financial wins, and the costliest mistakes, happen not because of market timing, but because of what’s happening in someone’s life at the time. Below are some of the most common life stages that should prompt a check-in with your adviser, and why each one matters.
Starting your first job or changing your job
Your first payslip is one of the most important financial moments of your life, simply because of the time value of money. Every rand invested in your twenties has decades to compound. This is the ideal time to:
- Open a retirement annuity or start contributing to your employer’s fund, even at a modest level.
- Build a small emergency fund before anything else. Three to six months of expenses is the goal, but starting with one month is still progress.
- Set up risk cover (life and disability) while you’re young and healthy, when premiums are at their lowest.
- Understand your payslip: UIF, tax, and any employer benefits like group risk or medical aid.
Habits formed here, saving a fixed percentage of every increase, for example, tend to stick for the rest of your career.
Changing your job comes with different remuneration structures, the need to preserve your retirement fund from your past employer and many other variables.
Getting married
Marriage changes your legal and financial position, not just your relationship status. It’s worth reviewing:
- Your matrimonial property regime (in or out of community of property, with or without accrual) and what it means for your assets and debts.
- Beneficiary nominations on retirement funds and life policies. These don’t update automatically when you marry.
- Your Will, which should be updated (or created) to reflect your new circumstances.
- Combined budgeting and whether joint or separate financial goals make more sense for you as a couple.
Couples who align their financial goals early tend to avoid a lot of friction later.
Having a child
A new child brings joy and a long list of new financial responsibilities. Key things to address:
- Review life and disability cover to ensure it’s enough to protect your family if something happens to you.
- Add your child as a beneficiary on medical aid and consider dread disease or severe illness cover.
- Start an education savings plan early. Education costs in South Africa typically rise well above general inflation, so time in the investment markets matter.
- Update your Will to include guardianship nominations and testamentary trust structures for minor beneficiaries.
The earlier an education or savings plan starts, the smaller the monthly contribution needs to be to reach the same goal.
Leaving an employer with a pension or provident fund
Changing jobs is one of the moments where people most often make costly, irreversible decisions. When you leave an employer, you generally have a few options for your retirement savings: preserve it in a preservation fund, transfer it to your new employer’s fund, transfer it to a retirement annuity, or cash it out.
- Cashing out is usually the most expensive option. You lose the tax-free preservation benefit and pay tax on the withdrawal, on top of losing years of compound growth. Cashing in a retirement fund before normal retirement is generally the worst financial decision many people make. They simply never recover from the financial set-back.
- Under the two-pot system, only your vested pot (savings up to 31 August 2024) can typically be cashed out on resignation; retirement and savings pot rules differ, so it’s worth confirming exactly which portion you’re dealing with.
- Preservation funds allow one full or partial withdrawal before retirement. Using that option when you leave your job unnecessarily removes flexibility later.
- Fees, fund choice, and beneficiary nominations should all be reviewed on the receiving fund, not assumed to carry over.
This is a moment where a five-minute decision can affect your retirement outcome by years. It’s worth getting advice before deciding to cash-out or before signing anything.
Getting retrenched
Retrenchment is stressful, and financial decisions made under pressure are often the wrong ones. A few things to keep in mind:
- Check your severance calculation and any retrenchment-specific tax directive — the first portion of a retrenchment payout is taxed more favourably than a resignation withdrawal.
- You may qualify for UIF benefits; these should be claimed promptly.
- Resist the urge to cash out retirement savings to cover short-term expenses if there’s any other option — rebuilding lost retirement capital later is far harder than budgeting through a gap now.
- Review your risk cover, since premiums for life and disability policies still need to be paid even without an employer contributing or deducting them.
- Revisit your budget and emergency fund immediately and get advice before making any fund withdrawal decisions.
Getting a salary increase
A raise is an opportunity, but only if it doesn’t simply get absorbed into a higher cost of living. A useful rule of thumb: direct at least half of any increase toward savings, debt repayment, or increased risk cover, before lifestyle creep sets in.
- Increase retirement contributions — even a small percentage increase, compounded over the years left to retirement, makes a meaningful difference.
- Check whether your risk cover still reflects your income and lifestyle; cover that felt adequate a few years ago may now leave a gap.
- Consider whether you’re using your full tax-deductible retirement contribution allowance.
Starting a new occupation or opening your own business
A change in occupation, not just employer, can have a bigger impact on your financial plan than people expect, particularly for risk cover.
- Occupation class affects premiums and, in some cases, the terms of disability and income protection cover. Moving into a different occupation category should always be disclosed to your insurer.
- Income continuation and disability benefits are often linked to your occupation-specific duties, so a career change can change what you’re covered for.
- New employment may come with new employee benefits (group risk, medical aid, retirement fund) that should be integrated with your existing personal cover, rather than simply stacked on top of it.
- A new business venture comes with its own unique set of challenges and the reason why many new ventures fail has less to do with the ability and commitment of the founder than it has to do with understanding business finance, tax and cashflow.
The bottom line
None of these life events need to be navigated alone, and very few of them have a single ‘correct’ answer that applies to everyone. What matters most is that your financial plan is reviewed at the moments when your life changes, not just once a year on autopilot. If you’re approaching any of these milestones, it’s worth booking a review so your plan keeps pace with your life.
This article is for general informational purposes only and does not constitute financial advice. Please speak to your financial adviser about how these principles apply to your personal circumstances. Author, Marc Squier Wealth and Asset Advisors.
