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Retirement planning:

Most people find themselves reaching retirement without having done any preparation or planning.

The most of us strive to have financial independence at retirement.

Research has shown that only 3 out of every 10 South Africans can retire financially independent at the age of 55 or 65.

The rest will have to rely on government pension scheme’s or be dependent on other members of their families to support them at old age, the majority will work till death even if they are old and ill.

After working actively for years, we are sure without a doubt you earn the reward to retire financially independent. Precise and accurate financial planning will lay a platform for you to build your future the right way.

The planning process:
It is very important to always have a plan, this will keep you focused and determined to achieve you financial goals. It is now the time to start that plan to work for you.

    A Retirement Budget.
  • At retirement, you would like to have al your debt paid off and also have no one dependent on you.
  • Remember that unforeseen events can have a devastating impact on your finances and your income and expenses can change.
  • The budget must be designed to be flexible at times and also be able to change investment strategies’: This can be due to emergency medical costs, taxes, lifestyle adjustments, inflation or living longer than expected.
  • This also means that we need to have a suitable investment that can give returns above inflation or we will have to adjust our income to save as much to accommodate the cost of living
  • When making provision for retirement we must calculate what the value of the desired income and what the capital value of existing capital will be in the future.
    This is where we identify and quantify the income and capital you will need on retirement.

When we quantify a need in terms of how much we need and set a date for when we need it, it becomes clear what your goals are for retirement.

  • There are different types of escalation we have to keep in mind.
  • The amount of how much our contribution escalates per year. Atleast 3% -5% above inflation.
  • The inflation escalation and fluctuation.
  • The interest earned on our investments.
  • Depending on where we invest. Past performance does not give us the security or guarantee that the fund will always perform as well; only where the fund has guarantees.

Look at what you are currently providing towards your retirement savings

We can determine the additional amount of capital you will need at retirement:
This can be used to set aside something we call 24/7 money.
When you need it you have at your finger tips, when its not needed it grows with interest which can also later be used to draw income from.
Time, inflation, and personal health is one of your biggest threats when planning for your retirement.

Start by adding additional savings on the side to fund any possible short falls.

Choose an investment plan that will suit your needs the best.

Investment Products:

Income Investments
The traditional method of securing a life-long annuity has great merit. It will ensure that you get a guaranteed, inflation-linked monthly income as long as you live. But that comes with concerns. In today's low interest rate environment, your monthly income rate will be low. In an effort to address this, many retirees opt for Living annuities, which have higher risk than other annuities.

Retirement annuities.
Like an Endowment policy you will be investing into a Retirement Annuity.
The funds can not be drawn from until age 55 except if you become disabled.

At the date of Retirement 1/3rd can be drawn as a lump sum and the remaining 2/3rds must buy a compulsory annuity to provide you with a post-retirement income, which will be fully taxable at your marginal rate of tax.

Who should consider an RA fund?

You should consider saving for your retirement with an RA fund if:

• You are self employed.
• You want to supplement your pension or provident fund benefits.
• Your company does not offer a pension or provident fund.
• You want to benefit from the tax benefits granted on RA fund contributions.

Tax incentive to save for retirement

As an incentive from government to encourage you to save for your retirement, your contributions to an RA fund are tax deductible annually to a maximum of the greater of

• 15% of taxable non-retirement funding income or
• R3 500 less allowable pension fund contributions or
• R1 750

Contributions in excess of the annual tax-deductible amount can be rolled over to the following year.

Must knows about RA funds

• You cannot make withdrawals from your RA fund prior to retirement, making this a disciplined savings vehicle - one of its most important advantages.
• RA funds are protected against most creditors, with the exception of the Receiver of Revenue and a spouse or child entitled to maintenance in terms of a court order. This is especially important if you are self employed.
• New generation RA funds enable their members to choose from a diverse range of underlying investments and also allow switching between these underlying investments.
• You may contribute to your RA fund via a one-off lump sum (single premium), regular premiums or ad hoc lump sum instalments.
• RA funds accept transfers from approved pension, provident and retirement annuity funds as well as voluntary contributions.
• If you have not been contributing the full tax deductible amount for the tax year, you can inject your RA fund with a lump sum payment at the end of the year.
• If you have been contributing more than the tax deductible portion, you will be allowed to deduct, in future tax years, the disallowed portion of this year's contributions.
• In the case of a life linked RA fund, the policy contract, as well as the rules of the fund, may prohibit you from moving your investment to an RA fund from another life or unit trust company.
• You can extend your retirement date on a year-by-year basis, letting your capital grow until you need it.
• You are able to choose the most cost efficient RA fund, simply by comparing the Reduction in Yield (RIY) of each fund. The RIY summarises all costs in one percentage. The lower the RIY, the higher the maturity value.

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