Retirement planning

Planning for retirement is something most people think they only have to be concerned about in the future. Most people are of the opinion that the contribution to their company pension is sufficient. However, it’s always better to have a comprehensive retirement plan done by a CFP® professional  to make sure that you are able to maintain your current lifestyle when you retire.

Pension fund

An employer and an employee usually contribute to a pension fund. The fund has predetermined rules about when members of such a fund should retire. Contributions made by your employer to a pension fund is taxable as a fringe benefit.
Upon retirement, you can take up to 1/3 of your fund as a lump sum payment and the remaining 2/3 will be invested to pay you a monthly income.

Provident fund

An employer and an employee usually contribute to a provident fund. The fund has predetermined rules about when members of such a fund should retire. Contributions made by your employer to a pension fund is taxable as a fringe benefit.
Upon retirement, you can take the entire amount as a lump sum payment.
Note that once the retirement reform has been implemented you will only be allowed to take 1/3 as a lump sum and the remainder has to be invested to provide you with a monthly income.

Retirement annuity

When you invest in a retirement annuity, you pay the contributions, and an employee employer relationship is not required. With a retirement annuity, you can choose your retirement age, with the earliest retirement age being 55 years. Your contributions and future increases are not directly linked to your salary.

Saving for retirement can bring some tax relief.
If you contribute to a pension, provident fund or retirement annuity you will be able to deduct a combined limit of 27% of your income with an overall limit of R 350 000 per annum. If you have contributed more in a particular year, you can carry the additional amount over to the following tax year.

This depends on the type of lifestyle you want during retirement. It’s never too late to start saving toward your retirement, however the sooner you start the more growth potential and the greater the effect of compounding interest; which is growth on growth.

Consult with a CFP® professional  for assistance in planning for a comfortable retirement.