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Retirement Planning

  • Preparing for retirement. An RA helps you to build up capital during your working years so that you have enough income to enjoy the same standard of living when you retire.
  • Ensuring sufficient savings. The rule of thumb is that if you save 15% of your salary over 35 years, you will receive 75% of your salary as a pension, given reasonable returns. The problem is that your pensionable salary (the amount that your 15% pension contributions are calculated on) is usually about only 70% of your total salary benefits which include, for example, a bonus, car allowance, medical aid and other benefits. This means that you could retire on 75% of 70% of your salary. It's important to save for these "extras" as they do help us meet our current living expenses. For example, if your monthly package is R20 000, you would need to retire on the equivalent of R15 000 (75%). But your pensionable salary is significantly less at R10 500 (75% x R20 000 x 70%). By investing 15% of your non-pensionable income into a retirement annuity, you can make up the savings gap. A starting point is to always invest 15% of your bonus tax-free into an RA.
  • Tax benefits. You can invest up to 15% of your total income-less any amount that may be used for other pension fund contributions) tax-free. Not only can you invest with before-tax money, but you do not have to pay capital gains tax or income tax on your retirement investment. Your investment growth will be higher over the long-term as the growth remains in the policy and will usually offer you a better after-tax return than other types of saving. When you retire, you can take one-third of your investment as a lump sum. Of this the first R300 000 is tax-free with a favourable tax-rate for higher amounts. The remaining two-thirds of the retirement annuity is invested in an annuity to provide you with income during your retirement.
  • The power of compound growth. Because you are saving over a long period, your money starts to work for you as you earn interest on the interest. If you save consistently over 30 years, less than 35 cents of each rand of income you receive will come from the contribution you paid in. The balance will come from the growth earned on your contributions and savings in retirement.
  • Disciplined savings. You do not have access to your retirement annuity savings until the age of 55. This may sound like a disadvantage, but it removes the temptation to dip into or deplete your savings while you are working. Here's an example: Twenty-five-year-old Sipho needs about 15% of his salary through his working lifetime to secure an adequate pension. If he cashed in his savings at 35, he would need to save 25% to get to the same benefit. Starting from a zero base at 45 requires an incredible 47%. The only remedy here would be to retire later.
  • Long-term growth. As markets fluctuate during different economic cycles, your consistent contributions will average out this variability. You also draw your pension over a (hopefully) prolonged period. Therefore, what happens in a turbulent investment market is of less concern to you. The average investment manager has delivered returns which are 11% above inflation over the past five years, despite the recent global economic crisis.
  • Supporting your dependents. If your dependents are left to cope without you, your retirement annuity can provide a source of income for those you leave behind, especially if you buy death cover on your policy. The cash benefit from a retirement annuity falls outside your estate, so if you die and are insolvent, your benefit is paid to your family rather than your creditors.
  • Room to grow your savings. While pension funds generally require a contribution that is a fixed percentage of your salary, RAs offer more flexibility. Many people recognise the need to save but struggle in the short term to meet financial obligations. A retirement annuity allows you to slowly increase your contributions over time. For example, you could take 3% from each of your next five years' salary increases to get to the full 15% contribution. You can also invest a portion of your bonus each year as a lump sum contribution.
  • Diversified portfolio. You have access to different asset classes in a retirement annuity. You can invest 20% of your savings offshore without needing Reserve Bank clearance. You can also invest in other types of portfolios through your RA, such as direct property, private equity and fund of funds.
  • Freedom of choice. With many retirement annuities, you can choose your underlying investment, giving you some flexibility in how your contributions are invested and therefore, how they grow.

Guaranteed Returns

Guaranteed Investments - Offers an investor a risk-free investment where your investment return is pre-agreed and not linked to market fluctuation and performance. All guaranteed investments are over a period of 5 years with three options to choose from:

  • Guaranteed Capital Growth
  • Guaranteed Income
  • Guaranteed Capital & Income
  • The benefit of this investment vehicle is that your capital or income, or a combination of both, are guaranteed, with noticeable tax-related benefits. The investment also allows for a beneficiary to be nominated, keeping the asset out of one's estate if death had to occur, saving you from costly executor fees and ensuring money is available for your loved ones while the estate is busy being wound up. Investors can also cede this type of investment, if need be.

Saving Plans / Endowment

An endowment is a tax efficient structure where you as an investor can save/invest for the future. The endowment/savings plans give the investor an option to either invest monthly, once off or a combination of both. The benefits range from tax free maturity pay outs as well as being able to nominate a beneficiary to prevent the monies being included into your estate, as well as being able to choose from a multitude of funds to make up your investment portfolio.

Education Plans

The cost of education can be frightening, but with an education plan in place, saving for tertiary education can become a lot more manageable than most of us realise. Education planning should form a major part of any devoted parent's financial planning, from the moment their child/children is/are born. Investing in an education plan is one way of ensuring your child gets the best education possible. Start planning for your child's future today.

Unit Trust

What is a unit trust investment?

  • A unit trust fund is a pooled resource which allows a group of investors to combine their cash and invest into asset funds, managed by an approved fund manager.

Benefits of unit trusts:

  • Your money is in safe hands - Although a fund manager makes decisions on your behalf, he or she can't access your cash. The legal structure has been designed to prevent others from stealing your money. The Financial Services Board regulates unit trusts and the professionals who make the investment choices for you.
  • Investment risk is usually lower than other types of investments - A unit trust spreads your money across many funds. This means that if one fund doesn't work out, you won't lose all your savings. The flipside of this: if one investment does incredibly well, your entire holding won't rise in value to that extent. So, there is less risk, but less return. Still, you have the comfort of knowing it is unlikely you will lose all your money suddenly.
  • Unit trusts are easy to sell - If you need your money, you don't need to give a long notice period as you would if you place your cash in a bank account with a good interest rate. You can have your money within days. This is an advantage if you have an unforeseen event arise.
  • It is simple to track how your investments are performing - You can keep track of your funds' performance in several ways. You can access your statement online or find performance tables in the media. Your fund manager will also provide a regular update through fact sheets, which you can find on the website of your unit trust provider. The fact sheets provide quick summaries of how your investment is doing and what your money has been used to buy.
  • You don't need huge sums to invest in big assets - Unit trusts are designed for ordinary income earners. You can invest in lump sums or monthly debit orders. The latter usually start at around R500/month. Lump sums are often in the region of R50 000. Monthly investing makes it possible to build a large amount slowly on a limited income.

Tax Free Investment

What is a tax-free investment?
A tax-free investment was introduced as an incentive to encourage household savings. This incentive was available from 1 March 2015, with a current annual savings limit of R 33 000.00 per annum. The product also offers many benefits.

  • No Tax
  • Compounded Growth
  • Accessibility of funds if needed
Contact one of our financial advisors should you require any further information.

Retirement Annuity

Retirement annuities - These are long-term savings/investment plans that help investors accumulate sufficient capital to generate a monthly income after retirement. Proceeds of a Retirement Annuity can only be accessed at the age of 55. This may sound like a disadvantage, but it removes the temptation to dip into or deplete your savings while you are working. Retirement Annuities have a multitude of benefits, such as:

  • Tax benefits - As of 1st March 2015, you may deduct up to 27,5% of your gross remuneration or taxable income (whichever is the higher) in respect of your total contributions to a pension, provident or retirement annuity fund, subject to an annual limit of R350 000.
  • The power of compound growth - Because retirement annuities tend to be long term investments, your money starts to work for you as you start earning interest on interest; this highlights the benefits and importance of starting your retirement annuity at a young age.
  • Beneficiary nomination - Being able to nominate a beneficiary ensures that, if death had to occur to the investment holder, the funds would be kept out of the investor's estate, saving on costly executor fees and ensuring money is available for your loved ones while the estate is busy being wound up.

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