Evil landlord & RAs...

[fire2029]

Evil landlord: "Hello peasant." (evil laugh)
"You have too many cows. I want 40% now or in 7 years."

You (thinking): "I reckon I can double the number of cows every year."

[1]: Give him 40% of your cows now.
[2]: Give him 40% of your cows in 7 Years.

What do you do?

===

Follow up question.

Are retirement annuities just like cows, which you are feeding & handing over to SARS (evil landlord)?

 

[Scooby_Doo]

View attachment 1776593

Evil landlord: "Hello peasant." (evil laugh)
"You have too many cows. I want 40% now or in 7 years."

You (thinking): "I reckon I can double the number of cows every year."

[1]: Give him 40% of your cows now.
[2]: Give him 40% of your cows in 7 Years.

What do you do?

===

Follow up question.

Are retirement annuities just like cows, which you are feeding & handing over to SARS (evil landlord)?

It is indeed a deferred tax, as you are saving tax now but will still pay it later.

 

[Pax]

Plane already over?

 

[PaulGherkin]

View attachment 1776593

Evil landlord: "Hello peasant." (evil laugh)
"You have too many cows. I want 40% now or in 7 years."

You (thinking): "I reckon I can double the number of cows every year."

[1]: Give him 40% of your cows now.
[2]: Give him 40% of your cows in 7 Years.

What do you do?

===

Follow up question.

Are retirement annuities just like cows, which you are feeding & handing over to SARS (evil landlord)?

No, an RA is an outdated, piece of shyte investment vehicle.

 

[fire2029]

It is indeed a deferred tax, as you are saving tax now but will still pay it later.

If you simply defer tax, are they even worth investing in?

 

[fire2029]

No, an RA is an outdated, piece of shyte investment vehicle.

What about the newer ones? Low cost, index tracking RAs?

 

[PaulGherkin]

What about the newer ones? Low cost, index tracking RAs?

I have very poor experience with the whole lot of them. They stole my money

 

[Scooby_Doo]

If you simply defer tax, are they even worth investing in?

You get the benefit of using the tax saving now to grow your money.

Whether you can get a better return else where to make up the tax saving if you did not use an RA is a different question all together.

 

[fire2029]

I have very poor experience with the whole lot of them. They stole my money

What the ?

 

[Scooby_Doo]

What about the newer ones? Low cost, index tracking RAs?

Those are just the underlying vehicles that you can buy into within the RA umbrella. So normal rules apply similar to ETFs when it comes to fees, just that these funds have a few extra rules they need to comply with to maintain their RA eligibility.

 

[fire2029]

You get the benefit of using the tax saving now to grow your money.

Whether you can get a better return else where to make up the tax saving if you did not use an RA is a different question all together.

But that is the original question of my badly illustrated landlord game.

If you go with choice 2. ie Dont pay tax now and grow your RAs tax free until retirement. If you end up paying tax at retirement, dont you end up in exactly the same position as choice 1?

 

[Scooby_Doo]

What the ?

He is likely referring to a low return over the last 15 years which further cut into his account by higher fees.

 

[Sideshow Bob]

I have very poor experience with the whole lot of them. They stole my money

They = Liberty ?

 

[Scooby_Doo]

But that is the original question of my badly illustrated landlord game.

If you go with choice 2. ie Dont pay tax now and grow your RAs tax free until retirement. If you end up paying tax at retirement, dont you end up in exactly the same position as choice 1?

Maybe. Depends on the return of the RA fund vs non-RA fund. That upto 45% tax saving is relatively hard to beat.

Also note that your tax table for a retiree is going to be lower.

 

[PaulGherkin]

They = Liberty ?

Yes those motherfukkers.

 

[Tomtomtom]

If you go with choice 2. ie Dont pay tax now and grow your RAs tax free until retirement. If you end up paying tax at retirement, dont you end up in exactly the same position as choice 1?

No, because a) you have compounded tax-free gains and b) you are (probably) paying a lower rate of tax in retirement.

The tax-free compounding is a big deal. It effectively means SARS contributes to your RA's returns and they do not get this back even if your tax rate stays the same.

You defer tax on the contribution, but you don't ever pay tax on the returns on the contribution. Like a TFSA but with usable limits.

 

[Scooby_Doo]

No, because a) you have compounded tax-free gains and b) you are (probably) paying a lower rate of tax in retirement.

The tax-free compounding is a big deal. It effectively means SARS contributes to your RA's returns and they do not get this back even if your tax rate stays the same.

You defer tax on the contribution, but you don't ever pay tax on the returns on the contribution. Like a TFSA but with usable limits.

You will pay tax on the returns though. Once the investment is converted to an annuity the full draw down will be added to your income tax and you will be taxed accordingly.

 

[Pegging]

If you simply defer tax, are they even worth investing in?

You earn income on the tax you deferred.

By the time you retire your tax rate will probably be lower.

 

[fire2029]

Lets assume

1. a R1m investment.
2. a 40% tax rate; which stays the same throughout.
3. the returns are the same for any investment. For arguments sake a global 10% return regardless of your investment.

Choice 1=Pay tax now & no tax later => R1m x (1-40%) x ^ 10 years to retirement
Choice 2 = No tax now , grow 10% and then tax at 40% => R1m x 1.1 ^ 10 years x (1-40%) to retirement


In this case, choice 1 = choice 2. What am I missing?

 

[fire2029]

You earn income on the tax you deferred.

By the time you retire your tax rate will probably be lower.

What if tax is exactly same? Is it still beneficial?