Inspired by a piece on Fin24, which talks about things you shouldn’t be doing if you want to retire one day. However, I look at it more along the lines of things you should be doing, should you want financial freedom one day. Being financially free to me means, no debt and the ability to earn an income off assets you already own or have saved. Which effectively is the old term “retirement”. However, retirement has the nagging connotation of sitting at home doing nothing or playing golf all day. Few people I know at “retirement age” (65) want to “retire”, however they also don’t want to be slogging away at a job. Therefore, what things should you be doing should you want financial freedom at some stage in life?
You should have a plan, it is ALWAYS too late to start saving, as opposed to the general perception of young people who put it off for another day. The earlier you start, the less you need due to compounded interest and market growth over a long period. Your plan should include being able to draw 70% - 80% of your current income increased by inflation annually, when you choose to stop working in your current profession.
“The another day” is TODAY, “I’ll save more when I get an increase, when I get a promotion” by doing this you will get to the age of 65 and wonder why you don’t have financial freedom to now choose how you want to live.
Make sure you are selecting the right Provider and checking you are in the right asset managed fund, that will ensure you are heading on the right path to financial freedom. Many of the old Retirement Annuities sold, carried large fees and limited fund choice, for example, if you have 20 years to “financial freedom” in your life plan, being in an income fund will not provide you with the highest growth over the period. High fees will also chew into your growth leaving you will little left.
“Don’t scoff at getting help” Using a professional Financial Advisory Practice (like PWH Wealth Group) helps you determine how much you need to save monthly, the best structure/ provider as well as the assortment of asset managed funds you should be invested in according to your risk profile. They (we) will also keep you up to date with new tax laws, products and other options, ensuring you are saving with the best possible outcome.
Throw your eggs in several baskets. By creating a diversified portfolio in a variety of funds onshore and offshore reduces risk and promotes a healthier portfolio.
DO NOT DO NOT cash out your retirement portfolio early or splurge in the first few months of “financial freedom”, you have been disciplined up and til then, continue with that thought process. It’s difficult to say, how long any of us will live therefore once the 8 to 5 is gone, you still need to ensure your money is managed per your goals.
In 2015 we saw the amendment of deductible contributions into a retirement fund. It is now that time of year where should you not have utilized your full deduction; it is advisable to use it as to effectively reduce tax payable/ claim a bigger tax refund from SARS.
Retirement Annuities are a gift from government, they allow you to save without paying any tax at present, on the growth of your funds. They ALSO allow you to deduct the contributions in your quest for financial freedom, thus putting more money in your pocket today. The Product Providers have also provided you with a gift, by lowering fees charged as well as doing away with penalties should you wish to change product provider. Here I refer to the “new generation” retirement annuities, if you are invested in an “old generation” annuity you may still carry higher fees as well as penalties, these have not need done away with due to the way the products were structured. It is however possible to change this.
If you have not contributed towards a retirement fund to the max, you should consider adding to it and claim the full deduction from SARS.
Limits:
27.5% on the greater of:
Remuneration, as defined in the fourth schedule (excluding retirement lump sums and severance benefits) or.
Taxable income, (excluding retirement lump sums and severance benefits)
To the maximum of R350 000.
As they say “the time is now”. All monies must be deposited and reflect in the providers account before the last working day in February as for the funds to reflect for SARS on the tax certificates.
Happy savings in 2017!