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.

Different options saving for retirement

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 are 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 are taxable as a fringe benefit.

Up until 28 February 2021, provident fund members were allowed to withdraw 100% of their benefits, subject to taxation on the non-exempt portion. 

With the new legislation which is applicable from 1 March 2021, provident funds will now be subject to the same rules as pension funds at the time of retirement – except for members 55 years or older, who will remain unaffected for as long as they stay on the same provident fund. For members younger than 55 and new provident fund members, the new legislation will apply to any contributions made from 01 March 2021 onwards.

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.

Tax deductions

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.

How much should you save for retirement?

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.

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