As you approach retirement age, you will be looking to your financial advisor to guide you in selecting the right retirement income solution to provide a sustainable income for the rest of your life. Life or Living Annuity? Living annuities allow you to retain full control over your retirement capital: You can control your investment allocation, change your income drawdown annually (within a legislated range), and leave any remaining capital to your appointed beneficiaries upon your death. You will also need to manage the risks that come with this control by choosing an appropriate investment allocation and a suitably prudent income drawdown. Life annuities (or fixed annuities) allow you to receive a guaranteed income for life, with an insurer taking on some or all of the risks that you live longer than expected or returns are lower than required. You pass control of your retirement capital to the insurer, and typically, there will be lower or no capital for beneficiaries upon your death. You can add a guarantee option of 10 or 20 years to ensure income for your beneficiaries after you death for the remainder of the guaranteed period. Determining Income Drawdowns for Living Annuities The general rule of thumb for individuals retiring at around 60 to 65 years of age and drawing income from a living annuity suggests that you withdraw 4% of your capital in the first year of retirement and adjust for inflation only each year thereafter. This is based on investing and maintaining at least 50% in equities, which has been needed to sustain this income over 30 plus years in retirement. Ready to Plan Your Retirement Income Strategy? Speak to your financial advisor today to discuss your retirement goals and find the best income solution tailored to your needs. Your advisor can help you navigate the options and make informed decisions to secure a comfortable and sustainable retirement. Email service@daberistic.com or schedule a meeting with Kevin using this link: calendly.com/daberistic/60min
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In 2024, South Africa will finally see another major change to our retirement system. Although known as the “Two Pot system”, in reality, and for most, it will be a new three pot system. All retirement savings invested before 1 September 2024 will vest in a vested pot (pot 1), while all new contributions after 1 September 2024 will be allocated between a savings pot (pot 2) and a retirement pot (pot 3). Investors aged 55 and older as of 1 September 2024 will only have one pot - if you so choose. “South Africans are not saving enough for retirement!” screech the headlines at least once a year, followed by industry pundits such as myself citing shocking statistics such as “90% of retirees are unable to maintain their standard of living after retirement”. Hair-raising stats like this, taken from a January 2022 study by Genesis Analytics and the Financial Sector Conduct Authority (FSCA), are published year after year but have done little to scare under-saving South Africans to change their ways. This is evidenced by the same study’s finding that two-thirds of retirement fund members have less than R50,000 saved. If the definition of insanity, according to the wisdom of Albert Einstein, is doing the same thing over and over and expecting different results, we need to try something new to incentivise 90% of South Africans to save adequately for retirement. This is why I welcome the government’s new “two-pot” retirement system, which is now set to be introduced on March 1 2024 as opposed to the initial and somewhat unrealistic date of March 1 2023. It is a long-overdue revamp of a system that is clearly not effective, a fact that was reiterated in November when SA slipped even further down in the Mercer CFA Institute Global Pension Index. SA dropped three places this year: down to 34 out of the 44 pensions systems the index benchmarks. There are still many details that need to be finalised before the new two-pot system is promulgated along with the annual budget in March 2023, but the broad aims already agreed on will put structures in place to entice South Africans not only to save for retirement, but preserve these savings until retirement age. And it will provide South Africans with another accessible tax-free savings vehicle once they’ve maxed out their annual or lifetime tax-free savings allowance. Enforced preservation with more flexibility The two-pot system will apply to all members of pension and provident funds, umbrella funds and retirement annuity funds who were under the age of 55 as of March 1 2021. It is designed to address the achilles heel of the current retirement system: members are able to cash in their entire savings if they change or lose jobs. This all-or-nothing preretirement withdrawal rule radically reduces members’ chances of achieving their retirement goals. And since early withdrawals count towards each member’s one-off R500,000 tax-free lump sum withdrawal allowance, large preretirement withdrawals sabotage a member’s retirement outcome. The two-pot system will change this by splitting retirement savings: two-thirds of contributions will go into a retirement pot and one-third into a savings pot. The retirement pot cannot be touched until retirement, even if you lose or change your job, and must be annuitised at retirement. “The new 'two-pot' retirement system is designed to address the Achilles' heel of the current retirement system, which allows large preretirement withdrawals that sabotage a member’s retirement outcome.” Kyle Hulett, head of investments at Sygnia Asset Management If you would like to set up an appointment with our Financial Advisor contact Sandra, email: service@daberistic.com tel (011)658-1333 Written by: Kyle Hulett Source: Timeslive In partnership with Morningstar: The year has been off to a busy start, keeping investors at the edge of their seats. One can’t help but feel like everything is ‘increasing’ or being hiked – whether it be interest rates, the price of diesel and petrol, rates, taxes and/or geopolitical tensions, the trend seems to be upward. In partnership with Morningstar: In the words of David Bergmann, “the tax tail should never wag the investment dog”. With that being said, it definitely won’t hurt to know and understand how a Retirement Annuity (RA) can minimise the amount of tax you pay and keep more of your hard-earned cash in your own pocket. In partnership with Morningstar, Let’s kick off the comparison with a quote by Ryan Holmes – “You can run a sprint or you can run a marathon but you can’t sprint a marathon.” The same principle can be applied to saving for retirement. Training to run a marathon is very similar to saving for retirement. In partnership with Morningstar: The Bucket Approach” for post-retirement-portfolio planning has gained a lot of traction over the past several years, and for good reason. It is an easy to understand and easy to follow method and it provides cushioning in volatile periods. To learn more about the bucket approach: www.morningstar.com/articles/330323/the-bucket-approach-for-retirement-income
If you as a retiree or someone approaching retirement would like to review your investment strategy, email service@daberistic.com, or schedule a meeting with Kevin the Financial Advisor here https://calendly.com/daberistic |
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