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A Fin24 reader wants to retire at 50.
A young Fin24 reader looking to retire at 50, wants to know the different investment options for retirement that will allow her to access all her funds when she retires.
She writes:
I am a 27 year old looking for solid options for retirement. I would not want to put my money into a retirement annuity, as I would like to have access to all my funds when I retire. I am looking to retire when I turn 50. What are my options?
Brett Mackay, Group Investment Consultant and RA Manager at 10X Investments, answer back:
If you are looking to access the funds only 23 years from now, you have plenty of time to get great capital growth from the stock markets. Markets can be volatile in the short term, but investing in stocks for the long term will provide you with the growth you need. You have time on your side, so you can allow yourself to be a bit aggressive in your approach.
There is no reason why you should not divide your savings between retirement products and other investment products in order to access funds when you want or need them, at age 50, in addition to taking advantage of government incentives to save for retirement.
Saving for retirement is, to some extent, a personal journey, but the underlying principles are common to all. You should consider investing at least part of your savings in a policy that will allow you to get a tax refund every year for the next 23 years.
You can withdraw from a Retirement Annuity (RA) at the age of 55, at which point you can withdraw up to a third of your fund to spend or invest as you wish. The remainder must be invested in a living annuity, where it will continue to grow and provide you with income.
By putting some of your savings into an RA, you’ll get a tax refund year after year in exchange for leaving some of your savings in the fund after the 50-year target date. It’s really worth doing the sums and taking advantage of the tax incentives. Simply put, the government returns some of their taxes to taxpayers as long as they are saving in an official retirement savings product.
The problem with having access to all of your savings when you retire is that most people do not have the knowledge or discipline to use or invest funds wisely. A vital annuity is a way to invest part of your savings in a product that will provide you with a monthly income for the rest of your life.
Other investment vehicles that you can invest in and access before the minimum retirement age of 55 include:
Tax-free savings account: You can contribute up to R36,000 each year to a tax-free savings account (lifetime limit of R500,000), where you will grow without incurring taxes on investment growth (capital gains), interest or dividends. What’s also great about a tax-free savings account is that you can invest in low-cost equity ETFs that will perform better over time than simply parking the funds in a money market fund.
Unit confidence: A great way to invest for any length of time. The underlying portfolio determines what the return will be. The longer the term (the time until you need the funds), the more aggressive (more exposure to equities) it should be. You can buy a variety of different funds within a unit trust, depending on where you think the returns will be. Wide diversification is recommended to limit risk. Invest in South Africa and other countries in the form of funds or offshore exchange-traded funds (ETFs) to help with diversification.
Regardless of the vehicles you choose, make sure your money works best for you by keeping your taxes and costs low. Some products are much more tax efficient than others, and fees vary wildly between products and service providers. Also make sure you are well diversified, not only in the types of investments you have, but also in all geographies.
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