Make plans, make goals.
A few things that are helpful for you to know…
Unit Trusts:
- You may enter and exit as you wish.
- Growth is taxed at your tax rate.
- No beneficiaries, so on death will form part of your estate.
Endowments for individuals:
- Benefit from tax savings as growth taxed at 30% in fund.
- Estate planning benefit as beneficiaries nominated.
- Only one withdrawal allowed in first five years.
Tax Free Investments:
- Maximum you can invest per tax year is R33,000 with lifetime maximum of R500,000
- All dividend and interest income and capital growth are tax free.
- Estate planning benefit as beneficiaries nominated.
- Note: I appreciated this good piece of legislation that encourages more people to save. It’s a great opportunity and has become a staple in financial planning.
Retirement Annuities:
- Locked away till age 55 soonest.
- Contributions towards an RA reduce your taxable income.
- On retirement you may access up to one third with two thirds paying out over time in the form of a pension (see Living Annuity below).
- Beneficiaries nominated but proceeds will be directed to dependents.
- RA’s are protected from creditors.
Preservers: (What to do with your money from pension and provident funds when you leave the employ of a company)
- A personal investment to continue growing your accumulated retirement funds.
- You choose portfolios.
- Locked away till retirement age. (except for one withdrawal before then)
- Beneficiaries nominated.
- Your retirement money will be transferred to the preserver without incurring tax.
Living Annuities:
- An investment that pays money to you on a regular basis, usually made up at retirement with money from pension and provident funds and retirement annuities.
- Money paid to beneficiaries on death.
So in investing you have three layers of decisions to make:
- Which brokerage to use, or to go solo, both of which will influence the next two decisions,
- The product best for your purposes, and
- The investment portfolio/s to use.
The 72 rule: Divide 72 by the growth rate to work out how many years it will take for your money to double or halve. For example, 72 divided by 9% growth means that your money will double every 8 years. Or, 72 divided by a 6% inflation rate means that the buying power of your money will halve in value every 12 years. Play with the numbers and reach your own conclusions.
As a general rule save 10% of your income, learn to live on the balance. Having a private stash is good for the soul and opens opportunities to your future self. You only floss the teeth you want to keep and only save the Rands you want to reap.
Tempted to spend the money now and need a good encouraging affirmation to help you do the right thing? Here’s one to repeat to yourself a few times each day:
- “I do things that make sense. I think long term. I am not a child.”
