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With one of the worst personal savings cultures in the world, South Africans are notoriously poor savers while being heavily overburdened by high debt. And yet, we all need to be saving…for retirement, for those unforeseen events, for those big expense like buying a house, or for a child’s education among other things.
It is therefore essential that a strong savings culture should be nurtured, from your child’s piggy bank savings all the way through to sophisticated high-end investment vehicles.
What many people may not know is that the government is actively encouraging us to save by making available substantial tax benefits for those who do. And there are many excellent savings options available, whether for ordinary salaried folk or high-net-worth individuals (HNWI). But the bottom line is: the sooner you start saving, the better.
Here’s what you can do
There are many different investment and savings plans, products and options to choose from. These may include a retirement annuity, an offshore pension, a tax-free savings account or an endowment policy. Ultimately your choice will depend on your personal circumstances, your risk appetite, your needs and your long-term goals.
But a word of advice: it’s always best to have a qualified financial planner assist you with your savings plan and selection of the most suitable options for your requirements.
Useful tips from the experts
- At least 20% of your monthly income should go towards savings, 50% towards necessities, and 30% towards discretionary items – the 50-30-20 percent rule.
- At age 30 you should have saved at least an amount equal to your annual income, double that by age 35, three times that at 40, seven times at 55, and 10 times your income by age 65.
- Your minimum goal should be to receive about 75% a year of your final annual salary when you retire.
- Know the difference between being wealthy and being rich or having a large income. Wealthy people don’t spend lavishly on unnecessary items – they plan and save for the long term and invest their money wisely, making sure their wealth grows, is protected and preserved.
- Don’t splash out and spend your annual bonus in one go. Ideally pretend it’s not there and save it all, or pay off debts, or at least follow the 50-30-20 percent rule.
- Start saving as soon as possible, when you are young. A little money regularly set aside from an early age over a long period will produce much higher returns than a large amount set aside later over a short period.
- Insure yourself against costly unforeseen life events such as critical illness, loss of income or death. This will ensure that in such an event you don’t have to spend your life’s savings or leave nothing to your loved ones.
- Make provision and save for your children’s education from the day they are born.
- Instil a savings culture in your children. Teach them to save up from their pocket money for those big items they want. Make this a life-long habit.
Retirement Annuities (RAs)
Apart from saving for your retirement, RAs offer excellent tax benefits, are very flexible and with no compulsory retirement age. Contributions are tax-deductible up to 27.5% of remuneration/taxable income, subject to an annual limit of R350 000. Income, capital gains and dividends are exempted from tax during the term of the investment, while no estate duty is paid on the first R350 000. RAs are well protected by law.
Tax-free Investment Accounts
Tax-free savings accounts and other tax-free investment vehicles are among the best options for long-term investment and saving strategies. But one should be fully aware of all the legal requirements and the benefits of the different vehicles. Tax-free investments were introduced in March 2015 as an incentive to encourage household savings. South Africans are allowed to contribute up to a total of R33 000 per tax year towards one or more tax-free savings or investment accounts, with a life-time limit of R500 000 per individual. The returns from these investments are exempt from paying income tax, dividends tax or capital gains tax. Tax-free investments may only be provided by specific prescribed financial institutions.
Critical Illness, Loss-of-Income and Death Cover
Unforeseen life events such as critical illness, debilitating injury, permanent or temporary disability and death can lead to loss of income, disrupt your savings plan, eat up all your savings or leave your loved ones with nothing. To protect yourself and your savings against such costly disruptions, there are excellent insurance options available that provide cover against critical illness, disability, loss of income and death.
Get professional assistance
Carrick Wealth can provide you with assistance and advice in respect of all of the above. Feel free to contact us today at [email protected].
- Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. Carrick is also licensed in Zimbabwe, Botswana and Malawi, and holds three global licences in Mauritius. Carrick at all times maintains its independence with regard to product providers and asset managers, providing bespoke risk assessment, financial planning and other services to high net worth individuals (HNWI). Through our own qualified and experienced wealth specialists, as well as through partnerships with industry leaders in the fields of foreign exchange, tax, international property, offshore bank accounts, trusts, wills and estate planning, Carrick is able to provide the highest levels of service for your financial planning and investment requirements, both offshore and domestic. This communication is intended solely for information purposes for the use of designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information available to the public and from sources believed to be reliable, Carrick makes no representation that it is accurate or complete or that any returns indicated will be achieved.