Why volatility is your friend The JSE’s wild start to the year shouldn’t alarm long term investors. Patrick Cairns | 10 February 2014 23:22    Cape Town – Since the start of 2014 the JSE has bucked like a rodeo bull, and the investors riding on its back would be excused for feeling a little queasy. The tone was set on the first few days of trading when the bourse rose to a record high of 46 836 on day one, and then almost immediately dipped by over 1 000 points in the next week. It then took off again to set another record on 23 January of 47 348, only to start an even more spectacular plummet that took it as low as 44 145 in just eight days of consecutive losses. For many investors in equity unit trusts, this kind of volatility is a scary thing. They see the these swings on the JSE and wonder about how safe their money is. This is a fair response, because most of us are tuned to value consistency. When we buy a car, for instance, most of us prefer one that is going to perform in a predictable way. Even if a vehicle […]

How to choose between a life annuity and a guaranteed annuity CAPE TOWN – In this advice column Karen Wentzel from Sanlam Employee Benefits answers a question from a reader who wants to know how to select an appropriate retirement product. Q: I retired last year and invested my capital amount in an investment-linked living annuity. I am however considering moving to a guaranteed annuity option to lessen the risk and stress. What are the factors that impact on the amount a guaranteed annuity pays out? With interest rates on the up, is this something I need to consider? I seem to recall that a few years ago pensioners got quite generous pensions during the high interest rate period. The first thing to understand is that a ‘guaranteed annuity’ is not just one type of product. There is actually a range of different guaranteed annuity products, namely guaranteed escalation annuities, inflation-linked annuities, index-linked annuities and with-profit annuities. Identifying which one is the right choice for you requires you to understand your current needs, your likely future needs, and the different benefits that each provides. This is best done with the help of a qualified financial planner who can analyse your […]

What is a risky investment? Apr 25, 2016 | Thomas Stringfellow A risky investment is an investment that is inappropriate for your objective and time period. All this hogwash about conservative or assertive investors and moderate or aggressive investors is bullshit. There is no such thing as a conservative investor or an aggressive investor. Have you even seen an aggressive investor happy about losing all his money or a conservative investor celebrating insufficient capital for his retirement? Warren Buffet says a risky investment is when you do not know what you are doing. Risk profiles are a waste of paper and are causing serious damage to the general public. All this risk profile nonsense was created by the industry in order to sell more product. Every Monday, the sales team of financial services companies meet in order to discuss sales. How are we going to sell more product? People are scared to invest. Never mind that we haven’t educated people at school about money and that we still do shit when it comes to financial education, we need to sell product. How do we make people feel safe? How do we make people buy our stuff so we can make our […]

GEPF resignations taper off. Apr 22, 2016 | Ingé Lamprecht JOHANNESBURG – Amid efforts to ensure more South Africans can retire comfortably, National Treasury has been at pains to point out that the reform process is not an effort to nationalise pension funds.This came against the background of anecdotal evidence that many government employees were resigning to access their pension benefits. A study by the School of Statistics and Actuarial Science at Wits University confirms that there has been a steady increase in the percentage of resignations from the Government Employees Pension Fund (GEPF) between 2011 and 2015, with a slight reduction in the last few months. Bheki Mkhize, Actuarial Manager at the GEPF, says the study found that around 2.5% of the GEPF’s members resigned in 2014 and 2.8% in 2015. He says although some of these individuals did not cash out their benefits (but transferred or preserved it), the majority did. The recent resignations compare to an average annual resignation rate of roughly 1.5% from 2011 to 2013. The GEPF is the largest pension fund in Africa with roughly 1.3 million active members. Failure to preserve retirement benefits when resigning is arguably the main reason many South Africans […]

Retirement Life: Women And Men Do It Very Differently Apr 20, 2016 |Richard Eisenberg Imagine you’re about to retire. Clean slate, free days. What will you do with yourself? The answer depends, in large part, on whether you’re a woman or a man. That’s my reading of the fascinating new TIAA Voices of Experience 2016 survey of 1,583 retirees who’d participated in retirement plans offered by the financial services provider serving the nonprofit sector. The retired women, the survey said, were more likely to take part in many particular types of activities than the retired men, but there were also a few types of things the men were more likely to do in retirement than the women. The survey found agreement between the genders on one thing about retirement, though: “The busier you are, the happier you’ll be,” said Ed Moslander, TIAA’s senior managing director and head of institutional client services. 10 Activities In Retirement? In fact, 76% of the retirees who engaged in 10 or more activities reported being “very satisfied” with their retirement, compared with just 52% who engaged in one to four. OK, I can see why staying engaged in retirement can make you happier. But 10 […]

Do I really need dread disease and disability cover? Apr 15, 2016 | Ingé Lamprecht JOHANNESBURG – In this financial planning column, Johannes Burger, private client advisor at Autus Private Clients, answers a reader’s questions about dread disease and disability cover. Q: I am 30 years old with no dependents. I earn a salary of R30 000 a month. I recently started working at a small company that does not offer any additional benefits. I have a pension fund and medical aid, but it seems I may also need to get dread disease and disability cover and income protection. I have obtained some quotes, but was quite stunned to see that a premium of roughly R750 a month will only provide me with about R1 million in dread disease and disability cover. To pay R750 a month seems like a lot of money. Is R1 million in dread disease and disability cover enough for someone like me? How can I determine how much cover I need? Should I not rather use the money and invest it in shares or a unit trust? A: Dear Reader Financial planning is a creative process. Even though many industry experts have spent countless hours attempting […]

What to consider when choosing an annuity Mar 30, 2016 | Ingé Lamprecht JOHANNESBURG – For many retirees, the relatively higher initial income levels offered by living and level annuities is a significant consideration. Living annuities allow retirees to draw between 2.5% and 17.5% of their capital in retirement, which typically translates to a higher initial rand income at high draw levels compared to a guaranteed annuity. A level annuity (an annuity that offers a guaranteed rand income that remains unchanged until you die) generally also offers a higher initial income than a guaranteed annuity where annual increases are linked to inflation. But initial income levels are just one of the factors retirees have to consider when choosing an annuity. In fact, choosing a higher level of initial income in retirement could increase the chances of running out of capital (with a living annuity) or drawing a pension where the buying power has reduced significantly after just a few years (in the case of a level annuity). Speaking at the Alexander Forbes Hot Topics seminar, Michael Prinsloo, head of best practice at Alexander Forbes Research and Product Development, said previous publications showed that around 80% to 90% of single-premium purchases in South […]

That living annuity may just expire before you do 27 AUGUST 2017 – 00:04 LAURA DU PREEZ Working out how to provide a sustainable income from your retirement savings is “the nastiest, hardest problem in finance”, says William Sharpe, the man who won the Nobel Prize for economics for a theory on how to match investment gains with risk. The financial services industry calls the phase of your life when you stop accumulating savings, and draw on them instead, as your “decumulation” phase. Most of us embark on it after our retirement funds pay out a lump sum that we must use to buy a pension. But even though a Nobel laureate thinks figuring out how best to draw an income is tough, nine out of 10 of us choose to go it alone, or with an adviser, in an investment-linked living annuity in which you take a gamble on your investments providing enough income. Recent low returns have the newly launched South African Independent Financial Advisers’ Association talking about “the looming living annuity crisis” that will arise as more retirees are forced to decrease their pensions.

Save on tax by diversifying your retirement savings Jan 10 2018 15:57 Cape Town – Maximising your tax efficiency and achieving the best possible income in your golden years could mean finding a balance between your discretionary and retirement savings. Danie Venter, a Certified Financial Planner and advisory partner at Citadel Investment Services, says making sure that you are saving enough for a financially secure retirement is absolutely crucial. He, however, warns that many investors fall prey to the common financial mistake of over-contributing towards their retirement funds. The SA Revenue Service (SARS) allows tax deductions for contributions to a pension fund, provident fund or retirement annuity up to the value of 27.5% of the greater of your taxable income or remuneration. This deduction is also limited to an annual ceiling of R350 000. “It represents a generous tax incentive to increase your retirement savings, but remember that your investment strategy should also take into consideration your tax consequences after retirement,” he says.

TAX RATES FOR INDIVIDUALS: 2018/2019 TAX YEAR   Taxable income (R)   R0 – R195 850 R195 851 – R305 850 R305 851 – R423 300 R423 301 – R555 600 R555 601 – R708 310 R708 311 – R1 500 000 R1 500 001 and above Tax rate   18% of each R1 R35 253 + 26% of the amount above R195 850 R63 853 + 31% of the amount above R305 850 R100 263 + 36% of the amount above R423 300 R147 891 + 39% of the amount above R555 600 R207 448 + 41% of the amount above R708 310 R523 041 + 45% of the amount above R1 500 000