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South Africans may be annoyed by continually being told they don’t save enough. Let’s face it, rising living-costs and inflation can make you feel as though just surviving from payday to payday is a feat.
But several savings initiatives aim to help ordinary consumers close to retirement, do great things with whatever money they have and to help them meet their immediate needs as well as their retirement plan.
“If you retire at the age of 65, you need to accumulate approximately 14 times your annual salary at retirement,” says Karabo Ramookho, strategic retail manager at Old Mutual. “This should help you to have a retirement income that is at least 75% of your salary.”
Old Mutual created a retirement calculator to help you work out your current retirement income with existing savings. Click on this link to find out more.
How to save for retirement:
There are tax-efficient ways to address retirement shortfalls.
South Africans can contribute to pension, provident and retirement annuity funds up to 27.5% of their taxable income tax-free in each financial year. The tax deduction is limited to the lower of R350 000 or 27.5% of taxable income.
South Africans can top-up their retirement savings by increasing their contributions to 27.5% of their taxable income. They can further top-up their savings via a tax-free savings account. The tax-free savings threshold is R36 000 per annum or R3 000 per month. This means you pay no tax on the growth of your savings, in the form of dividends, capital gains or interest. You can save up to R500 000 tax-free over your lifetime.
“TFSAs are an ideal vehicle for topping up your discretionary retirement savings. You’re free to withdraw your money at any time during an emergency with no restrictions,” says Ramookho.
Choices at retirement:
When you retire from a pension or retirement annuity fund, you can withdraw a maximum of one-third of your fund’s value as a cash lump-sum. The remaining two-thirds must be invested in an annuity to generate a regular income. Provident fund members may still withdraw their fund’s value as a cash lump sum, but the government will be aligning their fund rules shortly to pension and retirement annuity funds.
If the fund value of your retirement fund is less than R247 500, you’re allowed to withdraw the total in cash.
Purchasing an annuity is often a balancing act that must take into account your age (your income needs to last your lifetime and will be lower the younger you retire), your gender (females tend to live longer), your spouse, interest rates and your investment options. You are also not restricted to one type of product to generate an income.
You can choose between:
Old Mutual guarantees that it will pay you a predetermined pension for your lifetime. When you die, your dependents will not receive any further benefits. However, you may take out a life assurance policy to leave money for your loved ones. There are various guaranteed annuity options.
You are responsible for investing your savings, and you take on the risk of drawing down a sustainable income in retirement to ensure that you do not run out of money. When you die, your dependents will receive any remaining benefits.
Old Mutual combines a guaranteed pension with a living annuity. The guaranteed portion can cover your monthly living expenses, and the living annuity portion may include any additional costs or holidays.
Old Mutual offers a unit trust retirement annuity that is linked to the market that provides growth beyond inflation and helps to not only preserve but grow your retirement capital.
Get rewarded for good financial behaviour by Old Mutual, and earn points that you can redeem with rewards partners, reinvest in Old Mutual products, donate to charity or buy airtime or data.
You can earn points by learning more about money and your finances, become money smart by drawing up a budget with Old Mutual’s budget calculator and achieve your dreams by investing your money with Old Mutual.
“Due to increasingly sophisticated retirement products, it is vital to speak to your financial adviser about a personalised plan for your retirement,” concludes Ramookho.
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