Retirement annuity + general investment advice

[TheHand]

Hey guys. I've read this forum and I've seen a number of guys with seemingly great RA experience helping others out, so I'm hoping I can ask the same.

I'm basically in my late 30s at the moment. Don't have an RA, been putting money aside into a 32-day call account where the performance has been exactly as you would expect. Yes, I've been really, really dumb, but if I can take one positive thing out of this pandemic, it's made me seriously take a look at my finances and my long-term outlook.

I have some positives. I don't have any debt. I've got an emergency fund and a table/flip fund. And while I'm hesitant to post numbers online (I know this doesn't help, but I just think it is super risky), I have a fair amount set aside that I can now invest into a proper portfolio. I've identified that I've also been spending frivolously, so I'm going to be reigning in some of my spending habits. I save 30% of my net salary atm, so I'm hoping doing so will up the amount I have to play with.

So I've got two questions for the esteemed persons in this forum:

1) Given the current financial climate, does it make sense to start investing in an RA now? I understand the benefits of doing so from a tax perspective, but I guess I'm wondering how much of that 30% I should be funnelling into the RA vs putting it somewhere else, like a unit trust. I did some calculations (and relied on a few retirement calculators), and the consensus seems to be I need to set aside that 30% completely into an RA to approach something that looks like retirement.

2) Given how badly I ****ed up, I thought it might be useful talking to a financial adviser. However, I've read that the fees can have a substantial impact on your investment over time, particularly if it's a percentage of your investments. Do you think it's worth getting a financial adviser in the short-term? Or perhaps a single consultation to go through my financial situation and provide some recommendations (unsure if that's even possible, or what that would cost)?

Thx in advance

EDIT 2020/10/28: Everyone, thanks for the replies. I encourage anyone hitting this thread to read the comments in full, but I thought I'd summarise the general feedback so far for anyone jumping in fresh:

• While I cannot vouch for these, since I've just started, @roskii suggested a couple of resources that might be worth listening/reading/following.

Listen to JustOneLap's podcasts. Read StealthyWealth's posts. Follow local guys like Bright Khumalo & Simon Brown, and oversea's commentators like Ben Carlson and Michael Batnick (Animal Spirits is their podcast) if you're interested in personal finance / market dynamics.

• To invest in an RA at the moment will depend on your outlook of South Africa in the long-term, but what's key is that it should not be the primary retirement investment. At most, it seems like @supersunbird's suggestion of 50% max of whatever I have is a good limit, before accounting for whatever limits exist for RA contributions over the year.
• Get started on a tax-free savings account (TFSA), most likely linked to global equities or an exchange traded fund (ETF). A unit trust is also a possibility with the same terms (global equities/ETF). ETFs in particular should be considered a long-term investment given that it leans on currency fluctuations.
• While always useful to get financial advice, most financial advisers are tied to insurance companies and aren't necessarily going to provide you the best plan, most likely they will try to sell you on their products. It's important to keep this in mind when considering any advice they provide. If you do want one, look for a fiduciary - someone who is legally obligated to declare conflicts of interests and must act in your best interests.
• If you're not saving already, start saving in something! To quote @roskii again, "Compounding will be your saviour". At the very least, it'll break your fall somewhat. You can get caught in analysis paralysis, so don't feel bad if you want to put it into something like a call account while you consider your options properly. I was really down about what I had done up until this point but as a couple of posters have pointed out, the fact that I had a call account and have been earning some interest means that I've done somewhat okay, although I could have been getting far better returns.

 

[Pineapple Smurf]

no idea
but im 48 and have debt and have zero investments for later in life
single, drink everyday
and party on and braai everyday pretending there is no tomorrow

 

[Scooby_Doo]

1 - If you believe in the future of SA and you are planning to stay in SA and trust the SA government. Yes utilize an RA, keep in mind the annual limits and 27.5% max.

If you answer no to any of the 3 statements above, then do not use an RA. Max out your TFSA by investing in some international equity index like snp500 and export the rest of your savings into hard currency and invest in another index tracker following global equity or simply snp500 again.

2 - Worth a once off consultation, but I have yet to find someone what works like that.

 

[Johnatan56]

1) Given the current financial climate, does it make sense to start investing in an RA now? I understand the benefits of doing so from a tax perspective, but I guess I'm wondering how much of that 30% I should be funnelling into the RA vs putting it somewhere else, like a unit trust. I did some calculations (and relied on a few retirement calculators), and the consensus seems to be I need to set aside that 30% completely into an RA to approach something that looks like retirement.

No, only max out according to tax write-off limit if you were to do this, I think it's 25% or a flat amount (think it was around R150k pm earnings), whichever is reached first.
Right now, unless your company is matching it, I'd be very hesitant and would generally rather take the tax hit.

I don't think you need to max it out at late 30's, you could probably do something like 15% and you should be fine since your costs should reduce when you become older, e.g. house and apartment are paid off.
Personally, I'd move a lot of my funds overseas as South Africa is currently not a stable environment, and for your base retirement savings you want to generally take lower risk.

2. Once off consultations can always be good, but come prepared with questions you want answered and don't agree to invest in anything until you've put more thought into it.

 

[supersunbird]

Are you planning on leaving SA?

If not, I would put half of what you are currently saving in an RA (10X, Sygnia Skeleton 70 or Coronation Balanced Plus, one doesn't need an adviser to invest in those) and the other half in a TFSA with 100% global exposure (S&P500) and if you've hit the TFSA monthly contribution limit, then the rest in offshore focused unit trust/ETF (S&P500), then whatever tax you get back at e-filing time due to the RA you put into the last mentioned.

The reason I'd do the above is because with RA are protected from oneself and bad investment ideas (you can't put your R4 million into Sharemax and then be left with nothing of your efforts over the years, since the money is in the RA) and for the tax benefit, which would then be used to invest internationally.

 

[Affieplaas]

I'm extremely scared of an RA for the following reasons:
- Firstly, your money goes in and there is no way of getting it out again before 55 (except if you do a financial emigration but if the hyenas that rule this mud pit get their way, you will have to wait 3 years after emigration to get the money)
- Secondly, for a fund to qualify as an RA fund, it must comply to regulation 28 of the pension fund act. Government can therefore prescribe where your pension money must go by changing this regulation. Plans are afoot to change this regulation so that a portion of all RA / Pension funds must be invested in SOE's.
- Thirdly upon retirement (or age 55), you can withdraw a maximum of 30% of the RA balance in cash. The rest is paid out to you over the remaining estimated life. You can thus not do with your money what you want.
- Fourth, you can only contribute a max of R350k per year in RA (27.5% of earnings capped at R350k per year)

Investing in an ETF or unit trust will give you the same growth (if not better) than an RA as the underlying assets are not restricted. Sure, you do not get the immediate tax benefits of an RA but when the RA pays out, all withdraws are taxable where with an ETF or unit trust you just pay capital gains tax on the growth.

Don't discount cash.... the 4% interest you get may be much more in some years than the growth on most stock based investments.

I'm 46 and I have stopped contributing to an RA and pension fund. I'm too old to emigrate so I will have to stay and fight. I've opened a foreign bank account and, when the Rand gains on the USD, I take cash out. Keep 6 months expenses in cash, use your R36k per year TFSA benefit and invest in a combination of index tracker and rand hedge ETF or unit trusts. If you have spare cash, get it in a foreign bank account, when things go boom and you have to go in stand in the political asylum seeker queue with the Syrians you will at least have some change for a Starbucks coffee.

 

[Pineapple Smurf]

i like @drifter_74 advice
We're in RSA
kak happens

and if pooh really hits fan buy kruger rands and put them in your spare tyre and drive north to Europe on a 'holiday' in your ****ed up Land Rover

 

[roskii]

My own opinion...

- emergency fund (at least 6 months expenses, target 12 if you can)
- TFSA (use EasyEquities -> global ETF's that are offer total return)
- RA (Sygnia Skeleton 70)
- Discretionary (use EasyEquities ZAR or USD accounts -> global ETF's)

Listen to JustOneLap's podcasts. Read StealthyWealth's posts. Follow local guys like Bright Khumalo & Simon Brown, and oversea's commentators like Ben Carlson and Michael Batnick (Animal Spirits is their podcast) if you're interested in personal finance / market dynamics.

Remember that every penny counts. Compounding will be your savior. It's never too late.

 

[zerocool2009]

Make sure your max your tfsa per year, and take 100% of the funds abroad!

Try to save 20% of your salary into anything.

For a great interest savings product, look at TymeBank. They offer 7% (with nothing fixed)

 

[mr_norris]

1) Given the current financial climate, does it make sense to start investing in an RA now? I understand the benefits of doing so from a tax perspective, but I guess I'm wondering how much of that 30% I should be funnelling into the RA vs putting it somewhere else, like a unit trust. I did some calculations (and relied on a few retirement calculators), and the consensus seems to be I need to set aside that 30% completely into an RA to approach something that looks like retirement.

2) Given how badly I ****ed up, I thought it might be useful talking to a financial adviser. However, I've read that the fees can have a substantial impact on your investment over time, particularly if it's a percentage of your investments. Do you think it's worth getting a financial adviser in the short-term? Or perhaps a single consultation to go through my financial situation and provide some recommendations (unsure if that's even possible, or what that would cost)?

1. I am not a fan of RA's, but I have a small one just so I get a bit back from the tax man.

2. I have mixed feelings about FA's. Often they are just working for Discovery / OM / Liberty Life / Momentum, and it's in their best interest to sell you policies / RA's / endowment policies because of their kickbacks. I understand that everyone needs to make a buck here and there, but what irks me is their money comes from what little bit I can save. No thanks. I think a better option is to find a good fiduciary. I have never tried using one myself, but with them you pay a consultation fee. I think I would be happy paying a once off fee every couple of years if I didn't read up on stuff myself.

- emergency fund (at least 6 months expenses, target 12 if you can)
- TFSA (use EasyEquities -> global ETF's that are offer total return)
- RA (Sygnia Skeleton 70)
- Discretionary (use EasyEquities ZAR or USD accounts -> global ETF's)

I pretty much follow this, except I have discretionary before RA, if that was ordered. A lot of people promote using your home loan for savings / emergency fund. I don't have a home loan, so I use Tyme Bank for mine. I longingly remember the days of getting 9% PA on that cash. Sad.

 

[supersunbird]

I pretty much follow this, except I have discretionary before RA, if that was ordered.

So no RA then, because discretionary has no cap so you cannot reach a level where you must get a RA. Just say "No RA" then.

 

[sandwitch]

Advice from someone who started late and who has no idea what they're doing: start now.

TFSA all the way.
International-everything-not-SA-anything all the way unless you really have to in which case minimise it as much as possible.
I've got a teeny-tiny RA that I'm leaving alone but I'm following drifter_74's advice in post #6.

Financial advisors - I've only had people trying to sell me the products they get kickbacks/salaries from. Supposedly there are good FAs out there but I'm not in the tax bracket to meet them. Or even shine their shoes. But I think before you visit an advisor do your own research so you can go in with an idea of what you want and what they might suggest or speak about.

[edit] Keep in mind that whatever you invest in when taling someone's advice won't give you the same returns others have gotten because of the time factor.

 

[Lukcydog]

Firstly, you at least did some saving into an interest bearing account so I wouldn't be too hard on myself if I were you. Secondly, if you go and look at the performance of the JSE the last few years, it cannot be said that you lost out much (only gains on some funds would have been the international exposure)

I agree with Drifter's comments. The only reason i have a retirement fund is because my company matches my 7.5% otherwise i'd avoid it at all costs. Having the freedom to invest your money as you see fit (and have access at it at any time) is awesome. However you need the determination not to touch the money, otherwise you will fail (like some of my friends).

TFSA is a good idea but my observations / learning so far wrt international etf's, its more of a ZAR hedge (which is what you want), but often the ZAR/USD offsets the gains in the offshore markets (short term). This should be a long term hold then.

 

[Alton Turner Blackwood]

no idea
but im 48 and have debt and have zero investments for later in life
single, drink everyday
and party on and braai everyday pretending there is no tomorrow

Aren't you 49, you idiot? You said you're turning 50 next year.

Also, I share your sentiment. I don't want to live longer than 60 once my kids are done studying. But I do contribute to an RA though, but that's only to keep my wife, who's never really worked, going should I drink myself to death before then.

 

[Alton Turner Blackwood]

@TheHand

https://www.sygnia.co.za/

 

[r4nd0m]

Some people are perhaps sour because they've put (and continue to put) their money into their RA's knowing full well what our great government is about and what they intend to do with pensions.

That tax incentive becomes a mute point when your investment is at constant risk the control is taken out of your hands.

My advice:

- You already have an emergency fund, so make sure to optimize it and don't hold too much cash.
- Invest in TFSA (because you're in control) and go for foreign-based ETF's
- Take the rest of that money offshore (using shyft and get a td-ameritrade account)

Foreign tax concerns, for the US at least are not difficult to resolve at all (if you do your own tax). We have a DTA with them.

- keep track of your incoming dividends and disposals
- understand REIT's are taxed and declared differently (rather use TFSA for these)

My point is that the global economy is much bigger than what SA can afford you alone. Even if you believe that SA will be okay, look at investing in the global economy (i.e., diversification).

 

[Pineapple Smurf]

Aren't you 49, you idiot? You said you're turning 50 next year.

Also, I share your sentiment. I don't want to live longer than 60 once my kids are done studying. But I do contribute to an RA though, but that's only to keep my wife, who's never really worked, going should I drink myself to death before then.

48

 

[upup]

I attended a pension roadshow the other day. They ask you if you have any
Retirement annuity .
if you do have, say 5000, they make your pension less eg pension 15000 -5000, they give me 10000. I still get 15000. Luckily I don't have.

 

[Thor]

RA in SA is a risk not worth taking the ANC will destroy you.

Max your TFSA
Invest in offshore ETFs
And have bitcoin

 

[TheHand]

Everyone, thank you very much for the replies. You guys rock.

I'm going to response directly to people without necessarily quoting their full posts, because I think the post will become a bit unreadable (if there's a way to link to the post without quoting it in full, I'll update). I'll also summarise the advice so far and update my opening post with it so people can get a quick view of it before starting in the thread.

@Scooby_Doo, @supersunbird, @Johnatan56: I don't have high hopes for South Africa's ability to manage the financial situation, although my concerns lean more into where we seem to be headed politically with parties like the EFF around (ironic, given their name). However, while I have not actively explored this aside from a few Google searches, I don't believe I have the ability to emigrate given my current qualifications and skills.

@drifter_74, thank you for the detailed reply. I share your concerns about the RA, but my thought is that, like @supersunbird said, an RA does (usually) protect you from bad personal investment decisions over the long term. It's a very good point re: the SOEs, I recall there were suggestions to enforce investment in SOEs through regulation, but I have no idea where that idea is atm. regarding your comment on tax, is this in reference to my existing call-account savings?

@roskii, @zerocool2009, thanks for the suggestions re: different accounts, banks and podcasts. I will definitely give them a look.

So no RA then, because discretionary has no cap so you cannot reach a level where you must get a RA. Just say "No RA" then.

I've seen "discretionary" mentioned a couple of times, what exactly do you mean by this?

@mr_norris, @Lukcydog, thanks. Your view matches my perception regarding financial advisers - most seem to be tied to a insurance company and attempt to sell you their products. I doubt they actively try to screw you over but the conflict of interest does raise some concerns for me. I've not heard the term "fiduciary" before but that seems to be more in line with what I'm looking for.

@sandwitch, @Lukcydog: it's good to hear that I haven't completely messed up as bad as I have and that it's not an uncommon position to find myself in. Your advice seems to track with a lot of what others are saying here w.r.t the portfolio and financial advisers.

@r4nd0m, definitely good advice, and interesting chart. Diversification is something I am aiming at. Quick question, since it's been mentioned a couple of times - I have an account where I can convert my rands into dollars (again, following my general approach to **** up everything, I did this during the pandemic at the worst possible time, when the rand was roughly R19 to the dollar and it didn't seem to be abating. I've left the dollars in there but I've now lost about 20% on that amount already). Would it be worthwhile continuing the account, or should I rather just close shop and shift them to the ETF

I'll summarise the general sentiment/advice so far:

• To invest in an RA at the moment will depend on your outlook of South Africa in the long-term, but what's key is that it should not be the primary retirement investment. At most, it seems like @supersunbird's suggestion of 50% max of whatever I have is a good limit, before accounting for whatever limits exist for RA contributions over the year.
• Get started on a tax-free savings account (TFSA), most likely linked to global equities or an exchange traded fund (ETF). A unit trust is also a possibility with the same terms (global equities/ETF). ETFs in particular should be considered a long-term investment given that it leans on currency fluctuations.
• While always useful to get financial advice, most financial advisers are tied to insurance companies and aren't necessarily going to provide you the best plan, most likely they will try to sell you on their products. It's important to keep this in mind when considering any advice they provide. If you do want one, look for a fiduciary - someone who is legally obligated to declare conflicts of interests and must act in your best interests.
• If you're not saving already, start saving in something! You can get caught in analysis paralysis, so don't feel bad if you want to put it into something like a call account while you consider your options properly. I was really down about what I had done up until this point but as a couple of posters have pointed out, the fact that I had a call account and have been earning some interest means that I've done somewhat okay, although I could have been getting far better returns.