PLANNING FOR MY RETIREMENT
I’ve just started earning a monthly income with something left after paying all of my bills, and I am uncertain about how to plan for my retirement. I want to make sure that my later years are lived comfortably.
Name withheld
Kobie Kritzinger, Wealth Adviser at PSG Wealth, Menlyn, responds: The idea of saving for your retirement is that, one day, these funds will replace your current income. Ideally, you won’t have any debt left at that stage, and any additional financial responsibilities towards your family, such as raising children would also have fallen away. This will leave you with the freedom to enjoy your golden years in comfort.
As a rule of thumb, expect a monthly retirement income of around R4 000 for every R1 million that you have saved. This will ensure that you do not outlive your savings. It’s very important to be realistic about the income that you’ll require in your retirement years. Make sure that you are not financially restricted by any commitments and be mindful that your living and medical expenses may escalate significantly in the last years of your life.
Put a proper plan in place:
- Check your spending habits and save wherever possible. Every little bit counts.
- Start saving as soon as possible, and increase your savings on a regular basis, as your earnings grow over the course of your professional life.
- Monitor your achievements and adjust where necessary. Life happens, and with it comes many ups and downs. It’s important to change your financial plan with this in mind.
- Try to avoid cashing out your savings when leaving an employer. Remember, you will take full advantage of the effect of compound interest if you remain invested.
- Take advantage of some of the tax breaks that SARS has initiated to encourage saving for retirement. The best way to plan for a care-free retirement is to speak to a financial adviser who will tailor a plan according to your unique needs.
DEALING WITH CHILDREN IN A WILL
My husband and I have recently had our second child, and we’ve decided to put a will in place. We are not sure of how it would work with babies and young children, what the difference between a guardian and a trustee is. What should we prioritise?
Name withheld
Denise Fourie, Wealth Adviser at PSG Wealth, Silverlakes, Pretoria, responds: This is a great question because when dealing with minor children in relation to a will, extra care needs to be taken.
The first step would be to make any inheritance that is left to a minor payable into a trust – such as a testamentary trust, which can be set up in your will. This type of trust comes into effect on the death of the founder, whereby assets and benefits are looked after on behalf of beneficiaries (in this case, minors), who cannot legally inherit the assets until they turn 18. This trust can include both assets and money.
Your will need to have clear instructions about how you would like your assets to be distributed, and include the details of the minors’ appointed legal guardians. It’s important to note the difference between a guardian and a trustee, as a guardian is appointed to care for your children on a daily basis, whereas a trustee is appointed to manage the trust’s assets to the beneficiary’s benefit.
A guardian can also be a trustee. However, it is often a safe step to have an independent, financially secure and trustworthy person as a trustee. Keep in mind that a minor’s legal or natural guardian will be in control of the minor’s inheritance unless the High Court - who is the highest guardian of the minor - decides otherwise.
It’s best to work with a financial planner who can ensure that you set your will up to benefit your family in a way that’s right for you and your family.
HOW DO I INVEST MONEY OFFSHORE
I’m interested in investing in the offshore markets, however, I’m uncertain of the types of investments that would suit my needs.
Name withheld
Elke Brink, Wealth Adviser at PSG Wealth Route 21, Centurion, responds: There are two ways to invest offshore: asset swap or direct offshore investing. You need to explore a route suitable for your specific needs as you can easily incur unwanted taxes if not done with proper foresight and consideration.
Consideration must also be given to local and foreign legislation and I would recommend speaking to a fiduciary specialist with multi-jurisdictional expertise to assist you in working out what will work best for your personal needs.
1. Asset swap: Global exposure gained through local, rand-denominated investments. This route allows you to benefit from diversification of the offshore exposure.
- A benefit is that no approval is required from the SARB, and funds can be available within 48 hours.
- The negative aspect of this would be limited fund choices under the jurisdiction of the SARB.
- Your funds are available locally and in rands only.
- Capital gains tax will be payable at your effective tax rate on the sale of assets.
Asset-swap funds are available on all major local investment platforms, so speak to your adviser.
2. Direct offshore investing: A single discretionary allowance of R1 million per calendar year is available to all South African residents who are 18 years and older, and who is in possession of a South African identity document. This allowance may be used for any legitimate purpose, including for investment purposes abroad. In addition, a foreign capital allowance of R10 million per calendar year is also available to South African residents, subject to first obtaining a tax clearance certificate.
A positive aspect of direct offshore investing includes having a much larger investment universe available with more funds, stocks and fund managers to choose from, with no South African jurisdiction or authority over these assets.
The downside includes more paperwork and regulatory protocols, when compared to the asset-swap route.
INSURANCE ON MY FIRST HOME
I’m about to buy my first home and I’m feeling overwhelmed, especially when it comes to insurance. What are the most important things I need to consider?
Name withheld
Karen Rimmer, Head: Distribution at PSG Insure, responds: First things first, you must disclose all the relevant details to your insurer. This is particularly important when it comes to the kind of property you are purchasing (freehold, sectional title and property within an estate). Insurance policies for these property types differ and will include specific clauses that pertain to the nature of the property.
Secondly, you must not forget to insure your home contents. Building insurance (which covers the structure of the home) does not automatically include the contents of the home – items like furniture, electrical appliances, your clothing or other personal items.
And finally, it's always best to keep your adviser in the loop. When it comes to ensuring you have adequate cover for the biggest asset you’ll probably ever own, it is beneficial to talk to your adviser regularly. Insuring your property will afford you with peace of mind that your investment is secure even when the unexpected occurs.
This feature is sponsored by PSG Wealth. Send your financial queries to [email protected]