Retirement Funding (Again)

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srothman

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So I've landed a new position with a substantial increase in remuneration.

I want to invest a portion of the additional funds in my retirement funding, but my question is this:

Do I supplement one of my existing retirement plans, all of which have been going for a good number of years, or do I take out an additional investment, perhaps one with a different risk profile?

Thanks
 
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If you have a retirement annuity with one of the better providers like Allan Gray then just bump up your contribution.

Otherwise start an Allan Gray retirement annuity.
 
I would only recommend putting away a maximum of 15% in the specified retirement products. You only get a tax benefit for the first 15% so anything above that and all you are doing is paying unnecessary fees. If you are disciplined enough to save the money yourself towards retirement and not dip into it rather just invest it yourself in something like Satrix divi or Nedbank Betta Beta. I put 15K into Satri divi at the end of 2007 (terrible timing, I know) and watched the market dip and then recover nicely. Even after stock broking account fees the R15K is now worth R25K about 5 years down the line.

The reason I would recommend self managing at least some is that I know people who pumped tons of money into RA's and pensions for decades and now have nothing because they did it all in Zimbabwe. Hyperinflation destroyed their lifetime's of savings. Hence its a good idea to diversify across countries if you can. Its almost impossible to move pension money offshore hence why I would recommend having some money invested in shares/Bonds/Cash that you an get offshore in a hurry should the need arise. Its never wise to have all your eggs in one basket and SA is currently an uncertain financial basket due to our uncertain politics. I really hope we pull through but there is no guarantee. As soon as I have cleared my bond I plan to put 10% into my pension and manage another 10% myself. Once I have a decent lump sum saved I will then open up a stock broking account in either London or NY and buy diversified indexes there that represent other countries. From a place like London you can invest in low cost Vangaurd ETF's that represent entire countries really diversifying nicely. Perhaps by that time there will be no need to open the London or NY account though as more and more foreign EFT's are now being offered in SA. It might be possible to invest around the world soon from a local stock account like they do in other countries.

Anyways, good luck!
 
Cius said:
I would only recommend putting away a maximum of 15% in the specified retirement products. You only get a tax benefit for the first 15% so anything above that and all you are doing is paying unnecessary fees.
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This has been changed from 1st March 2012 to 22.5% for contributions to pension, RA's and provident funds.
The cap is R200 000 per year on deductible retirement savings but you would need to earn more than R890 000 a year to hit the cap.
 
Thanks. That is a good move by the government but I have to suspect the motives. More money trapped in SA for them to loot maybe? I still think I want to manage about half my money myself and keep bits of it offshore.
 
Cius said:
Thanks. That is a good move by the government but I have to suspect the motives. More money trapped in SA for them to loot maybe? I still think I want to manage about half my money myself and keep bits of it offshore.
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I agree. It's just to easy for the government to change the rules.
- Let's nationalize all pension funds.
- Let's change the tax laws so that the non-previously disadvantaged are taxed 80% when they try to withdraw funds from their retirement packages.

After seeing how African governments to the North of us have no respect for the law (change laws and constitution as they please) I'm also starting to think that offshore investments may be a wiser decision in the long run.
 
Cius said:
I would only recommend putting away a maximum of 15% in the specified retirement products. You only get a tax benefit for the first 15% so anything above that and all you are doing is paying unnecessary fees.
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Absolute nonsense. You shouldn't be giving financial advice . Anything over the 15% is carried forward year by year and added to you tax free lump sum allowance (currently R315 000) at retirement. If you can afford to you should probably 'over-contribute'

Edit- thought I was responding to a responder.
2nd Edit- I was
 
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Thanks for the clarification Freshy-ZN. First I have heard of that carry over. Still, I know that for a specific year's tax return you can only count the first 15% as "deductible" not so? So while the carry over benefit will arrive down the line there is no benefit to the current years tax return. Also my Zim example still stands. Keep some of you money under your own control as we do not know what will happen in SA. Zim went independent in 1980 and things looked relatively normal for the first 20 or so years. It was only when the new government faced its first credible election threat that the desperation set in and they imploded the economy. The same may well happen here. In a few elections time when the ANC is unsure about hitting 51% they will also probably start looking at populist moves to win over the masses and could still destroy our economies and all local pensions with it. Hence I still advise keeping some eggs in other countries baskets and not putting your full faith in the ANC's abilities to not wreck our economy or currency.
 
A lot of people do not recommend RAs. Poor return or something?
Have discipline and invest your moneys elsewhere they say.
 
My dad recently retired and he slated his RA's. He paid into them for decades. In the end he did this huge exercise where he tracked the contributions in Excel and figured out what his return would have been had he just stuck that money in the SATRIX40 and STX40 won by far. RA's have tax benefits built in but at the end of the day they seem to predominantly benefit the financial industry with their high fees. I would only recommend RA's if you do not have the discipline to save and leave the money alone until you retire. Its better to have an RA which is hard to get the money out of than savings if you are going to plunder your savings every time an emergency comes along. For compound interest to work you really need to have the discipline to just leave the money alone to grow.
 
RAs perform as well as the underlying investment funds. You could invest in those same funds in the form of unit trusts. If you chose the wrong funds its not the fault of the RA. The RA is simply a wrapper. So in Cius's case perhaps his Dad did monitor the performance of his funds. This is why its so vital to review these things together with your advisor at least once a year.

Now let me give some thoughts on your worry about a Zim type of situation in SA:

If hyper-inflation and or government seizure of funds etc happens, its not going to make a difference whether your money is in an RA, a unit trust, a bank account or under your mattress.

Now it may well be prudent to stash money off shore but where are you going to send it? If you have another passport you could open a foreign bank account and later have the money offshore. You can send an annual allowance offshore so there is this possibility. However if you only have an SA passport then the Zim scenario would mean you couldn't bring this money back in again anyway.

You could set up an offshore trust but you need quite a bit of money to make it cost effective and also you would also then be taxed when you benefit from it.
 
@Freshy-ZN: Are you a financial adviser? Also do you recommend unit trusts as viable investments?
 
Cius said:
RA's have tax benefits built in but at the end of the day they seem to predominantly benefit the financial industry with their high fees.
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Reduction in yield on retirement funds:
2.5 percent a year for new-generation RAs. (Old life assurance contractual RAs were not measured again.) This reduces your end benefit by about 40 percent over 40 years;
About 2.1 percent a year for umbrella funds; and
About one percent a year for large, stand-alone occupational retirement funds.

Source: http://www.iol.co.za/business/perso.../sa-retirement-products-very-pricey-1.1299907
 
Cius said:
@Freshy-ZN: Are you a financial adviser? Also do you recommend unit trusts as viable investments?
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I am. Unit trusts are a viable investment where appropriate. In other words not always, no investment solution is suited to every situation. For retirement purposes you wouldn't get the tax benefits with unit trusts(collective investments). Also if you invested in say a money market unit trust in an RA and as a unit trust you would be taxed 30% of gains in the unit trust but not in the RA.

As mentioned already the new generation RAs are wayyy more cost effective than the old ones and also offer a far wider selection of funds to invest in.
 
Paul_S said:
Reduction in yield on retirement funds:
2.5 percent a year for new-generation RAs. (Old life assurance contractual RAs were not measured again.) This reduces your end benefit by about 40 percent over 40 years;
About 2.1 percent a year for umbrella funds; and
About one percent a year for large, stand-alone occupational retirement funds.

Source: http://www.iol.co.za/business/perso.../sa-retirement-products-very-pricey-1.1299907
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Absolutely brilliant that government is wielding the stick. The insurance companies need to be kept in line. However stating that SA has one of the most expensive of something doesnt automatically mean we shouldnt have one. We have the most expensive telecoms yet still use phones and broadband as an example. We have to make do with the best options currently available but again its great that government is keeping watch.
 
This I know. I was trying to determine if Fresh did. SA is very backwards in the financial products space. We are one of the last countries with a large unit trust industry. Everywhere else in the world they are obsolete due to their high fees which impact the Total Cost Ratio (TCR). Hence any financial adviser who advises me to look into unit trusts I instantly know to ignore. In SA the financial advisers still earn money each month for products they sold reaping fees for decades despite the fact that they have often not spoken to the client in question for years. Its sickening to be honest. I know Financial advisers who take 5% up front on new investments and 2% ongoing. Warren Buffet said if you are earning 1.5% after inflation you are doing well and these clowns take 2% ongoing!!! Madness. The rest of the world is destroying those leaches by changing the way the industry works. In England a financial advisers income works the same way as a doctors would. You pay per hour. None of these ongoing fees nonsense. Its a much better system as good advisers will get more business and can up their fees. Bad advisers will loose business and be forced out the industry. Funny thing is you will struggle to find a financial adviser in SA who is willing to consult on an hourly basis. Here its still very much ongoing fees. I compared my simple diversified investment into an ETF over 5 years to all the latest unit trust performances and I beat 98% of them. This is not taking on big risk by stock picking or timing the market, it was just me buying some SATRIX Divi shares. Diversified, safe, and giving me market returns without anyone else taking exorbitant fees. I say that but Satrix has fairly high fees 0.8% compared to some of the international ones. I would love it if Vanguard would come to SA as their ETF's are amazing and have cost ratio's under half of those of Satrix.
 
Freshy-ZN said:
Absolutely brilliant that government is wielding the stick. The insurance companies need to be kept in line. However stating that SA has one of the most expensive of something doesnt automatically mean we shouldnt have one. We have the most expensive telecoms yet still use phones and broadband as an example. We have to make do with the best options currently available but again its great that government is keeping watch.
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Have to agree there. Still, we can wish for a better system!
 
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