My first job & Unit trusts

[PPLdude]

Also TFSA first.

Any recommendations? I see old mutual has a potential calculator which shows some nice growth

 

[PPLdude]

Way too little of you still have R5000 spare on top of that.

Aggressive = Higher Risk.

Perfectly fine at your age. Generally lower the risk when you get within 5 years of retirement.




SARS and RA would do the job.

Good start here.

https://www.taxtim.com/za/blog/reti...march-2016---how-sars-new-changes-affect-you-

You get put up to 27.5% of your pensionable salary towards RA/Pension. And then get a rebate for it which is quite a chunk of change which you can then re-invest or consider a “bonus” of sorts if you like.

It definitely can be calculated but I’m never that hard up for it.

Just bear in mind that RA money would be locked down until retirement age so you kind of need an invest plan towards Short, medium and Long term to figure out where you want to put the money.

Retirement is far away, I thought i'd keep it 500 for about 2 years, then with my continued studies I might earn a bit more, then increase the RA amount

 

[Hamster]

Any recommendations? I see old mutual has a potential calculator which shows some nice growth

TFSA - ABSA or EasyEquities

I'd go RA/Pension first and TFSA second. You get to push the tax break into the TFSA which has a way smaller max limit than your RA.

Even if you later decide that an RA is not for you you'll at least have some funds in there that have 30-40 years to grow.

 

[SauRoNZA]

Retirement is far away, I thought i'd keep it 500 for about 2 years, then with my continued studies I might earn a bit more, then increase the RA amount

An unfortunate mistake many young people make and most older people would go back in time to correct.

Save more earlier and less later rather than the other way around...because compound interest.

R500 x 24 invested for 30 years (Age 55 if you are 25 now) at 10% average per annum.

12k x 30 years @ 10% = R 238,048.79

Now just double that up and still only apply it for 2 years.

24k x 30 years @ 10% = R 476,097.58

Now let’s say you invested it monthly for all 30 years and not just the first two.

R500 x 12 x 30 years @ 10% = R1,149,581.36 (R180,500 invested).

Let’s double it.

R1000 x 12 x 30 years @ 10% = R2,299,162.72 (R361,000 invested).

Now let’s adjust it annually for inflation. With 10%.

R1000 x 12 increasing by 10% every year x 30y @ 10% = R 6,439,575.70 (R1,974,933.64 invested).

I hope that illustrates it well enough why starting earlier rather than later makes all the difference.

 

[PPLdude]

An unfortunate mistake many young people make and most older people would go back in time to correct.

Save more earlier and less later rather than the other way around...because compound interest.

R500 x 24 invested for 30 years (Age 55 if you are 25 now) at 10% average per annum.

12k x 30 years @ 10% = R 238,048.79

Now just double that up and still only apply it for 2 years.

24k x 30 years @ 10% = R 476,097.58

Now let’s say you invested it monthly for all 30 years and not just the first two.

R500 x 12 x 30 years @ 10% = R1,149,581.36 (R180,500 invested).

Let’s double it.

R1000 x 12 x 30 years @ 10% = R2,299,162.72 (R361,000 invested).

Now let’s adjust it annually for inflation. With 10%.

R1000 x 12 increasing by 10% every year x 30y @ 10% = R 6,439,575.70 (R1,974,933.64 invested).

I hope that illustrates it well enough why starting earlier rather than later makes all the difference.

Oh wow, I had no idea it would sum up to those amounts.

Is contributing to RA only done through the employer? Can I have 2 separate RA managed by different companies?

 

[SauRoNZA]

My first job & Unit trusts

Oh wow, I had no idea it would sum up to those amounts.

Is contributing to RA only done through the employer? Can I have 2 separate RA managed by different companies?

Most people don’t and only figure it out too late when they can’t make the best use of it.

No and yes.

I have a Pension Fund with employer.

Preservation Fund from a Pension Fund of previous employer (same thing just no more contributions.

Then two private RA’s with Old Mutual.

 

[supersunbird]

Oh wow, I had no idea it would sum up to those amounts.

Is contributing to RA only done through the employer? Can I have 2 separate RA managed by different companies?

Yes, you can have as many RAs as you want with various providers (they normally have minimum of R500 or R1000 per month). If you put more than 27.5% of your total income (or more than R350 000 per year), the amount contributed above that is not lost in terms of the tax benefit, it will rolls over to the next years when you do SARS efiling until either you contribute less than 27.5% (or less than R350 000 if that factor applied) in a year or retire.

Remember, most employers offer a Pension Fund (or Provident Fund, don't worry about differences, government is trying to make it so that they have no difference). Some smaller employers do indeed offer to put money into a Retirement Annuity for you, a Retirement Annuity is kind of like a private pension fund for individuals.

I'd recommend, at minimum, that your total retirement fund contributions (pension/provident fund + RA) should be 20% of total gross income, but preferably more like 27.5%. The more you save now the less you will have to save in the future, when you are 40, you can spend more of your income on your kids and enjoying family life, than trying to also catch up in retirement savings because suddenly you realize retirement is much closer and you didn't contribute enough when earlier.

Here is and example how the retirement fund contributions tax benefit works:

Say you earn R300 000 per year.
You'd normally pay R60 000 tax on that if no retirement contributions.
Your employer pension/provident fund contributions of 15% (R45 000) get calculated in.
You will then only be taxed on R255 000 of income, say R49 000 tax.
Your employer HR will work that out into your salary, so you get the tax benefit monthly in your salary, so no lumpsum generally back to you during efiling.

So you then also contribute another 10% to an RA (R30 000 per year).
You will be taxed on just R225 000 oncome for the year, maybe R40 000 tax.
Come efiling time you could get R9000 back, because you had paid too much tax because your employer didn't know about those RA contributions and paid the normal tax over.

With some employer you can inform them and provide proof and they will work those RA contributions in and you get the benefit monthly and you don;t have to wait till efiling time.

Also the growth in a retirement fund is totally tax free, no dividends tax, not interest tax and not Capital Gains Tax.

The "downside" of an RA is that you can only access it earliest at age 55 (no latest age) or if disabled and can cannot work, and then only 33.3% in cash and the other 66.65 needs to buy a pension paying annuity. Another positive besides the tax, it is protected from creditors, not one can take it away from you if you declare bankruptcy or anything.

I hope the above gives you an idea of how it works.

 

[PPLdude]

Yes, you can have as many RAs as you want with various providers (they normally have minimum of R500 or R1000 per month). If you put more than 27.5% of your total income (or more than R350 000 per year), the amount contributed above that is not lost in terms of the tax benefit, it will rolls over to the next years when you do SARS efiling until either you contribute less than 27.5% (or less than R350 000 if that factor applied) in a year or retire.

Remember, most employers offer a Pension Fund (or Provident Fund, don't worry about differences, government is trying to make it so that they have no difference). Some smaller employers do indeed offer to put money into a Retirement Annuity for you, a Retirement Annuity is kind of like a private pension fund for individuals.

I'd recommend, at minimum, that your total retirement fund contributions (pension/provident fund + RA) should be 20% of total gross income, but preferably more like 27.5%. The more you save now the less you will have to save in the future, when you are 40, you can spend more of your income on your kids and enjoying family life, than trying to also catch up in retirement savings because suddenly you realize retirement is much closer and you didn't contribute enough when earlier.

Here is and example how the retirement fund contributions tax benefit works:

Say you earn R300 000 per year.
You'd normally pay R60 000 tax on that if no retirement contributions.
Your employer pension/provident fund contributions of 15% (R45 000) get calculated in.
You will then only be taxed on R255 000 of income, say R49 000 tax.
Your employer HR will work that out into your salary, so you get the tax benefit monthly in your salary, so no lumpsum generally back to you during efiling.

So you then also contribute another 10% to an RA (R30 000 per year).
You will be taxed on just R225 000 oncome for the year, maybe R40 000 tax.
Come efiling time you could get R9000 back, because you had paid too much tax because your employer didn't know about those RA contributions and paid the normal tax over.

With some employer you can inform them and provide proof and they will work those RA contributions in and you get the benefit monthly and you don;t have to wait till efiling time.

Also the growth in a retirement fund is totally tax free, no dividends tax, not interest tax and not Capital Gains Tax.

The "downside" of an RA is that you can only access it earliest at age 55 (no latest age) or if disabled and can cannot work, and then only 33.3% in cash and the other 66.65 needs to buy a pension paying annuity. Another positive besides the tax, it is protected from creditors, not one can take it away from you if you declare bankruptcy or anything.

I hope the above gives you an idea of how it works.

I think I get the just of it now

Thanks for the replies guys