Retirement annuity + general investment advice

[Pegasus]

Are you sure about the absence of tax within an RA? First I've heard of that

Returns on your investment are tax free​

You don’t pay tax on RA investment returns, such as interest income, dividends and capital gains

10X Investments

More money when it matters most

www.10x.co.za

2nd time now

 

[Scooby_Doo]

Returns on your investment are tax free​

You don’t pay tax on RA investment returns, such as interest income, dividends and capital gains

10X Investments

More money when it matters most

www.10x.co.za

2nd time now

Yes, but at some point, you have to buy an annuity and that is taxed.

 

[Pegasus]

Yes, but at some point, you have to buy an annuity and that is taxed.

And will that undo the 50 years of saving?

 

[Scooby_Doo]

And will that undo the 50 years of saving?

I did the maths in another thread based on 45% tax bracket and used actual return numbers in the investments inside an RA and a high equity international discretionary investment.

After about 10 years the discretionary starts to win out with its superior rate of return.

 

[Pegasus]

I did the maths in another thread based on 45% tax bracket and used actual return numbers in the investments inside an RA and a high equity international discretionary investment.

After about 10 years the discretionary starts to win out with its superior rate of return.

Where?

 

[Scooby_Doo]

Where?

Its somewhere, you are welcome to search through my post history.

In this thread.

Retirement and self-sabotage in South Africa

Here is my calculator results, if you maintained that investment over 5 years, you would be flat even. Notice the difference in returns over the last 5 years. RA Discretionary If you push that out to 10 years... RA Discretionary Beyond this, contributions from you into an RA are...

mybroadband.co.za

 

[Pegasus]

Its somewhere, you are welcome to search through my post history.

How was your calculation related to what i was saying?
And what tax rate will I pay when I am 70?
Why would I want to invesyt in that vehicle of yours instead of my Allan Gray balanced fund if I intend to retire here?

 

[Johnatan56]

How was your calculation related to what i was saying?
And what tax rate will I pay when I am 70?
Why would I want to invesyt in that vehicle of yours instead of my Allan Gray balanced fund if I intend to retire here?

E.g.

Your Allan Gray Balanced Fund managed 9.9% in 10 years, that's not great, and based on the JSE, I wouldn't expect it to go higher any time soon. Note I picked a graph pre-Covid/post-2008 on purpose, so you see how the JSE does in an environment without major crashes.

Haven't taken into account fees, and that's why these numbers above are a lie. Going to be fun when they use post Covid crash as a huge returns figure.

You'd have made more just putting it in the S&P 500 and leaving it there, and even the JSE beat the fund.

So an RA is not a higher interest vehicle, the reason for an RA is the fact that you can push the tax payments into the future, when you're most likely to not be earning another source of income and therefore drop tax brackets.

And yes, 27.5%, not 25%, my bad.
And that's why I am of the opinion that anything above ~21% tax or so, all depending on the person, don't bother with an RA as money in the bank is more useful, if above that, most likely it's worth using the tax vehicle.

 

[Pegasus]

Its somewhere, you are welcome to search through my post history.

In this thread.

Retirement and self-sabotage in South Africa

Here is my calculator results, if you maintained that investment over 5 years, you would be flat even. Notice the difference in returns over the last 5 years. RA Discretionary If you push that out to 10 years... RA Discretionary Beyond this, contributions from you into an RA are...

mybroadband.co.za

Yes we chatted about that before, and for some reason you gave the RA a 3.36% rate and your investment 17%.
And you didn't take into account any of the taxes of your international investment or the benefits of the RA.

I am ok with the 15.4% here.

Allan Gray | Balanced Fund

The goal of the Fund is to create wealth for investors by balancing income generation,capital growth and risk of loss using a mixed selection of assets.

www.allangray.co.za

 

[Pegasus]

E.g.
View attachment 1080797
Your Allan Gray Balanced Fund managed 9.9% in 10 years, that's not great, and based on the JSE, I wouldn't expect it to go higher any time soon. Note I picked a graph pre-Covid/post-2008 on purpose, so you see how the JSE does in an environment without major crashes.
View attachment 1080799
Haven't taken into account fees, and that's why these numbers above are a lie. Going to be fun when they use post Covid crash as a huge returns figure.

You'd have made more just putting it in the S&P 500 and leaving it there, and even the JSE beat the fund.

So an RA is not a higher interest vehicle, the reason for an RA is the fact that you can push the tax payments into the future, when you're most likely to not be earning another source of income and therefore drop tax brackets.

And yes, 27.5%, not 25%, my bad.
And that's why I am of the opinion that anything above ~21% tax or so, all depending on the person, don't bother with an RA as money in the bank is more useful, if above that, most likely it's worth using the tax vehicle.

In Scope:
That is the point I am talking to. After the 25% (or 27.5%) you still have a tax benefit.
The CGT from trades, the dividends tax and tax on interest you do not pay. Yes, you pay some tax in 40 years time or whatever, but in the meantime that money stays in your portfolio and is compounded over decades.
So had you invested that money in a the same fund in a UT product, you'd pay the tax on it and lose out.
Do you disagree with that?

I do have Index funds, and other investments and my RA is maybe 10% of my total assets, that is however not in scope. Your graphs etc are interesting but it's not in scope.

 

[Johnatan56]

That is the point I am talking to. After the 25% (or 27.5%) you still have a tax benefit.

No you don't, your cap is 27.5% of your total income, anything more than that you'll pay income tax on.

The CGT from trades, the dividends tax and tax on interest you do not pay.

Like you've said, if in an RA, the payout will count as income tax.

Yes, you pay some tax in 40 years time or whatever, but in the meantime that money stays in your portfolio and is compounded over decades.

Do you think it will beat e.g. credit card/overdraft interest rate?

So had you invested that money in a the same fund in a UT product, you'd pay the tax on it and lose out.

I disagree with the lose out if the returns will beat it, better compounded interest can beat paying taxes now. Not sure what a UT product is (or at least can't recall right now).

I do have Index funds, and other investments and my RA is maybe 10% of my total assets, that is however not in scope. Your graphs etc are interesting but it's not in scope.

It is completely in-scope and the entire point, if the RA, even with tax benefits for the delay, cannot beat out taking the hit, then you should take the hit.
I think my RA was 20% of my total income in terms of paying in last year up until March, would have to check what it stands at now in terms of returns.

You're being obtuse.

 

[Pegasus]

No you don't, your cap is 27.5% of your total income, anything more than that you'll pay income tax on.

Like you've said, if in an RA, the payout will count as income tax.

Do you think it will beat e.g. credit card/overdraft interest rate?

I disagree with the lose out if the returns will beat it, better compounded interest can beat paying taxes now. Not sure what a UT product is (or at least can't recall right now).

It is completely in-scope and the entire point, if the RA, even with tax benefits for the delay, cannot beat out taking the hit, then you should take the hit.
I think my RA was 20% of my total value up until March, would have to check what it stands at now.

You're being obtuse.

No you don't, your cap is 27.5% of your total income, anything more than that you'll pay income tax on.

tax on what?


Please try to focus.
In Scope:
That is the point I am talking to. After the 25% (or 27.5%) you still have a tax benefit.
The CGT from trades, the dividends tax and tax on interest you do not pay. Yes, you pay some tax in 40 years time or whatever, but in the meantime that money stays in your portfolio and is compounded over decades.
So had you invested that money in a the same fund in a UT product, you'd pay the tax on it and lose out.
Do you disagree with that?

 

[Johnatan56]

tax on what?


Please try to focus.
In Scope:
That is the point I am talking to. After the 25% (or 27.5%) you still have a tax benefit.

What is the tax benefit? Over 27.5% you pay income tax. This is my last comment on that, you're being obtuse.

The CGT from trades, the dividends tax and tax on interest you do not pay. Yes, you pay some tax in 40 years time or whatever, but in the meantime that money stays in your portfolio and is compounded over decades.
So had you invested that money in a the same fund in a UT product, you'd pay the tax on it and lose out.
Do you disagree with that?

Already answered.

 

[Pegasus]

What is the tax benefit? Over 27.5% you pay income tax. This is my last comment on that, you're being obtuse.

Already answered.

You do not pay tax inside the RA.

 

[Johnatan56]

You do not pay tax inside the RA.

./facepalm
Your income is R100k a month.
You put R50k into an RA.
You will only be able to offset 27500 against your income tax.
You've paid tax.

 

[Pegasus]

./facepalm
Your income is R100k a month.
You put R50k into an RA.
You will only be able to offset 27500 against your income tax.
You've paid tax.

I am not talking about income tax.

I am talking about CGT, dividend tax and the tax on interest inside the fund.

 

[Johnatan56]

I am not talking about income tax.

I am talking about CGT, dividend tax and the tax on interest inside the fund.

That's great, you'll pay that at the end as income tax when you start claiming.
You're not avoiding the tax. Really will be my last comment and setting you on ignore.

 

[Pegasus]

That's great, you'll pay that at the end as income tax when you start claiming.
You're not avoiding the tax. Really will be my last comment and setting you on ignore.

Yes, in 40 years time, in the meantime you earn money on the deferred tax.

 

[donanicky]

The amount paid over and above the 27,5% is rolled over to the next tax year and is deductable from that tax year, assuming you haven't gone over the 27,5% again. If you are over the limit again, it will continue to roll over until it can be deducted. You will get the tax benefit eventually.

 

[mr_norris]

I more meant is it okay to invest in a few different funds rather than put everything in one?

Nothing wrong with it, really comes down to you. More ETF's means less risk because of diversification, assuming that you have little to no overlap though.