Retirement and self-sabotage in South Africa

[Speedster]

Point # 1 here:

10X Investments

More money when it matters most

www.10x.co.za

Contributions are tax deductible​

In short, you pay less tax.

Money that you put into a retirement annuity is deducted from your taxable income. So, for example, if you earn R500,000 a year, and contribute R50,000 to an RA during the year, you’re only taxed on R450,000. (This is to illustrate the principle only – in reality, your tax calculation will probably include other tax deductions.)
There are limits. A maximum of 27.5% of your remuneration or taxable income (whichever is higher), and no more than R350,000, is tax deductible in a tax year. You can contribute more to your RA but after you’ve reached these limits, your contributions are rolled forward to and automatically deducted in future years. Also, the limit applies to all your retirement savings combined (including retirement annuities, pension funds and provident funds). So if you contributed the maximum of R350,000 in total, and R150,000 went to a pension fund at work, only R200,000 of RA contributions would be deductible.

I get that. The 27% is totally irrelevant though

 

[surface]

If you add R100 000 a year to your RA, you get R27000 of that back from SARS.
So 27% return for the year.
(Depending on your tax situation.)

Not anymore.

@Drifter - can you explain what you mean by "not anymore".

@Pegasus - surely, you get much more than 27% back from SARS for RA contribution? Unless you mean first 2 lower income brackets, I am pretty sure tax refund is done at marginal tax rate?

 

[Drifter]

@surface, talks of taking away the RA deduction for tax, same as medical aid contribution.

 

[Paul_S]

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of contributing to an RA are totally irrelevant if the entire investment is stolen or rendered worthless before retirement age.

 

[saturnz]

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of contributing to an RA are totally irrelevant if the entire investment is stolen or rendered worthless before retirement age.

I've been preaching this to many deaf ears on this forum, people do not understand this risk.

 

[Speedster]

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of saving to an RA are totally irrelevant if the investment is stolen or rendered worthless before retirement age.

Nobody is suggesting sticking all their money in anything (except, maybe Doge). RA should be part of your portfolio. And your doomsday argument only holds as much as you expect armageddon to hit SA. In which case you should be advocating that people don't hold any assets (including homes) in SA.

 

[Scooby_Doo]

@surface, talks of taking away the RA deduction for tax, same as medical aid contribution.

Please share links.

 

[surface]

@surface, talks of taking away the RA deduction for tax, same as medical aid contribution.

Sure, but when I say "not anymore", it means present. You are probably talking about some scenario in future which was put forth somewhere in news.

 

[SauRoNZA]

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of contributing to an RA are totally irrelevant if the entire investment is stolen or rendered worthless before retirement age.

If that’s your concern then you shouldn’t be in the country any more.

Otherwise a more logical approach would be to use your TFSA first and fund that with global investment.

Max out your RA and then use the tax rebate on international investment.

International investment in the wrong places could just as easily go up in smoke. Actually more easily in the hands of the average investor.

 

[SauRoNZA]

I've been preaching this to many deaf ears on this forum, people do not understand this risk.

Says the man who is all about putting everything into (local) property which has no international exposure of any kind.

 

[saturnz]

Says the man who is all about putting everything into (local) property which has no international exposure of any kind.

a complete misrepresentation

 

[supersunbird]

@surface, talks of taking away the RA deduction for tax, same as medical aid contribution.

That will make it totally pointless to save in those vehicles.

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of contributing to an RA are totally irrelevant if the entire investment is stolen or rendered worthless before retirement age.

Hell, should one even be in SA in body?

 

[surface]

That will make it totally pointless to save in those vehicles.

Surely, RA is but just a one small part of the portfolio, no one is suggesting to invest everything in RA and there is no point beyond max 27.5% in any case if one wants to benefit in terms of refund. I wish I had contributed to RA before last financial year.

Also, I have not read of any news that suggests government is cancelling/reducing tax refund for RA contribution.

Think for second. There is a popular opinion here that all these funds will be looted by government eventually, so what is their incentive to close this ? Won't they like sheeples like us to contribute to RA ?

 

[starmage]

I have the following scenario:
I have +- 10 years left to retirement
contribute to pension, RA and TFSA
have a pension preservation fund that has been lying there for the last 20 years.
Now I am considering cashing out the preservation fund(taking the tax hit) and then investing the payout into something else. The main reason I want to do this is because I want to diversify my asset base.

The 1st question is : Is this financially a good idea ?
And then - what/where to invest in ?

 

[supersunbird]

Surely, RA is but just a one small part of the portfolio, no one is suggesting to invest everything in RA and there is no point beyond max 27.5% in any case if one wants to benefit in terms of refund. I wish I had contributed to RA before last financial year.

Also, I have not read of any news that suggests government is cancelling/reducing tax refund for RA contribution.

Think for second. There is a popular opinion here that all these funds will be looted by government eventually, so what is their incentive to close this ? Won't they like sheeples like us to contribute to RA ?

Don't know what all your yackity smackity is about, I am pro RAs, just saying if they do stop the tax incentive, it will become a pointless product and then TFSAs and discretionary investments would be better, from the first second.

 

[supersunbird]

I have the following scenario:
I have +- 10 years left to retirement
contribute to pension, RA and TFSA
have a pension preservation fund that has been lying there for the last 20 years.
Now I am considering cashing out the preservation fund(taking the tax hit) and then investing the payout into something else. The main reason I want to do this is because I want to diversify my asset base.

The 1st question is : Is this financially a good idea ?
And then - what/where to invest in ?

Who is the preservation fund with?

If it was me, I'd rather stop the RA contributions (if no causal event penalty due to be in life insurance RA) and invest that at my own discretion if TFSA is maxed per annum already..

The preservation fund gives you great flexibility in my opinion. I will have to ponder the various options first.

 

[JustJack]

I have the following scenario:
I have +- 10 years left to retirement
contribute to pension, RA and TFSA
have a pension preservation fund that has been lying there for the last 20 years.
Now I am considering cashing out the preservation fund(taking the tax hit) and then investing the payout into something else. The main reason I want to do this is because I want to diversify my asset base.

The 1st question is : Is this financially a good idea ?
And then - what/where to invest in ?

"cashing out the preservation fund (taking the tax hit)"
The 1st question is : Is this financially a good idea ?
Nope as the tax hit % as you call it, is more than what you can get in returns %

 

[starmage]

Who is the preservation fund with?

If it was me, I'd rather stop the RA contributions (if no causal event penalty due to be in life insurance RA) and invest that at my own discretion if TFSA is maxed per annum already..

The preservation fund gives you great flexibility in my opinion. I will have to ponder the various options first.

Currently PF is with Momentum -- but will be moving this soon to Sygnia (just havent completed the paperwork yet
TFSA = maxed, RA contribution is small @ about R2k/pm and with iTransact (I consolidated my RAs about 2 years ago and reduced the investment amount to the current R2k.

 

[Scooby_Doo]

I have the following scenario:
I have +- 10 years left to retirement
contribute to pension, RA and TFSA
have a pension preservation fund that has been lying there for the last 20 years.
Now I am considering cashing out the preservation fund(taking the tax hit) and then investing the payout into something else. The main reason I want to do this is because I want to diversify my asset base.

The 1st question is : Is this financially a good idea ?
And then - what/where to invest in ?

With 10 years left it gets tricky. Based on my calculations you need at least 6 years beat out the RA benefits. With only 10 years left, and having already saved into an RA... You will need to math hard with actuals and how they factor into your tax brackets.

 

[Splinter]

People need their heads looked at if they sink all their money into RAs or pension products. 70% of your RA investments are stuck in RSA for good and it just takes one cycle of hyper-inflation or the stroke of a pen to wipe out that wealth within a few seconds to a couple of years.
Just ask Zimbabwean pensioners what happened to their wealth.

The tax benefits of contributing to an RA are totally irrelevant if the entire investment is stolen or rendered worthless before retirement age.

I've been preaching this to many deaf ears on this forum, people do not understand this risk.

What have you been preaching saturnz? If the entire country goes the way of Zimbabwe, your property portfolio will be worth very little as well.

And @Paul_S - exactly where are you putting your money?