By Emsie Martin
Few people have enough money to maintain their lifestyle the day they retire and most of us realise it too late. Most people prefer not to think about it or are unrealistic about what they are going to need every month.
In the current difficult economic times many South Africans don’t see it as a priority to save for retirement. And when you can scarcely put food on the table and live from day to day, saving is the last thing you think about. What are you going to do the day you reach the compulsory retirement age?
If you earn a big salary it is easy to talk about pension, provident and retirement annuity funds and all the tax benefits and how handy it is when it comes to your financial planning, including estate planning. Even if a financial planner tells you that you need another R1 million for retirement, there is nothing you can do about it. That is the naked truth. The company you work for is a private company and, unlike in the case of big companies, you are definitely not going to retire with millions. You probably won’t even get the tax-free sum.
During your lifetime you can take altogether R500 000 of your savings tax-free when you retire. All amounts (over R25 000) that you withdraw in cash before you retire will, however, shrink this amount.
The amount you are taxed with depends on how much you take and when you take it, and is usually calculated as follows:
R0 to R500 000 − 0%
R500 001 to R700 000 − 18%
R700 001 to R1 050 000 − 27%
R1 050 000 and over − 36%.
But what does one do if you cannot afford a retirement fund, or you will get a pension but it is far too little to survive on? What are you going to do with those few rands?
Here are a few tips:
Control your spending
- Start by establishing exactly how money flows into and out of your bank account.
- Live strictly according to your budget because most South Africans live above their means.
- What is your answer once people begin to ask what you are going to do after retirement? Is your pension adequate or did you save enough? What money can I save? Get a piggy bank. Put some of your small change in it every day WITHOUT removing it. Try to save only a R100 a month and put it in an account from which you cannot withdraw it.
- Buy cheaper, buy wiser. Use apps that give you discount on products. Avoid stopping at the shop unnecessarily.
- Check your insurance, that is to say if you can afford insurance.
- Take out a cheaper TV bouquet if you don’t have Openview.
- Do not run up more debts.
- Cut down on your cell phone account.
- Cut down on vehicle expenditure, such as unnecessary trips.
- There are many people today who find it impossible to live on their present income, and then the Receiver takes a huge 25% bite out of your second income for tax. (Get somebody somewhere with knowledge of tax to help you with this.)
- If you are a smoker, start making sums straight away. What does smoking cost you per month and what does it cost you per year? By stubbing out that cigarette you can save a sizeable amount per year. And it will also make a big difference to your doctor’s account.
- Write down every day what you spend.
Improve your financial wellbeing
- Preserve your retirement savings whenever you can.
- Supplement your savings as much as you can – first pay yourself 10% of your income. If you can see your savings like any other account, you will make sure that saving becomes a habit.
- Make sure that you are protected against emergencies by having enough insurance and savings.
- Manage your debt efficiently.
- Talk to a financial advisor to help you approach your needs in order of importance and to make the right decisions.
Make sure you claim your tax rebate
Many people make the mistake of ignoring the tax benefits offered by certain products. Therefore, make sure you get the right financial advice about pension payouts and tax.
The Solidarity Financial Professionals’ Guild is a community that focuses on connecting professional people who offer services in the financial industry. It offers members a network through which they can contact each other, share best practices and do business. Visit https://gildes.solidariteit.co.za/finansies/ for more information.
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