The shocking truth: Ignoring retirement funds could cost you millions
Don’t let procrastination jeopardise your financial future.
By Wouter Fourie
CEO of Ascor® Independent Wealth Managers and co-author of The Ultimate guide to Retirement in South Africa
As the tax year ending February 28, 2025, approaches, it’s crucial to recognise the unparalleled advantages of investing in retirement funds. In South Africa, vehicles such as pension funds, provident funds, and retirement annuities offer robust growth and significant tax benefits, making them indispensable tools for securing your financial future.
Maximise tax benefits before the deadline
Contributions to retirement funds are tax-deductible up to 27.5% of the greater of your remuneration or taxable income, capped at R350 000 annually. By maximising your contributions before February 28, 2025, you can substantially reduce your taxable income for the current tax year. This strategy not only decreases your immediate tax burden but also accelerates the growth of your retirement savings.
Harness the power of compound growth
Investing early and consistently in retirement funds allows you to benefit from compound interest – the process where your investment earnings generate their own earnings over time. The earlier you start, the more pronounced the compounding effect, leading to exponential growth of your retirement nest egg. Delaying contributions, even by a few years, can result in a significant shortfall in your retirement savings.
Protection from creditors and estate planning advantages
Retirement funds in South Africa are generally protected from creditors, safeguarding savings against unforeseen financial difficulties. These funds offer estate planning benefits, as they can be transferred to nominated beneficiaries without incurring estate duty, ensuring that more of your hard-earned money benefits your loved ones.
Flexibility and control over your investments
Modern retirement annuities offer a range of investment options, allowing you to tailor your portfolio to match your risk tolerance and retirement goals. This flexibility enables you to adjust your investment strategy in response to changing market conditions and personal circumstances, ensuring that your retirement plan remains aligned with your objectives.
Real-life example: The cost of delayed investment
Consider two individuals, both aged 30, planning to retire at 65. Person A starts investing R3 000 monthly into a retirement annuity immediately, while Person B delays investing by 10 years, starting at age 40 with the same monthly contribution. Assuming an average annual return of 8%, Person A will accumulate approximately R5.94 million by retirement, whereas Person B will have around R2.54 million. This stark difference of over R3 million underscores the critical importance of starting early to leverage the power of compound growth.
Act now to secure your financial future
With the end of the tax year fast approaching, now is the time to review your retirement planning strategy. By maximising the tax advantages and growth potential of retirement funds, you can set the foundation for a financially secure and comfortable retirement. Consult with a Certified Financial Planner® to ensure you’re maximising the benefits and making informed decisions that will pay dividends in the future.
Don’t let procrastination jeopardise your financial future. Investing in retirement funds is not just a prudent choice – it’s the best investment ever.
For more information about retirement, consider purchasing the best-seller book by Bruce Cameron and Wouter Fourie called The Ultimate Guide to Retirement in South Africa, now in its third edition, and visit www.retirementplanning.co.za
This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/the-shocking-truth-ignoring-retirement-funds-could-cost-you-millions/
Contact Ascor®Independent Wealth Managers for retirement planning advice.
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