We all feel that we pay too much tax. Luckily there are clever ways to use tax breaks to your advantage, and the best thing is that it’s legal. You can maximise your tax benefits before 28 February 2019.
Einstein didn’t refer to compound interest as being the eighth wonder of the world for nothing. He said:
“He who understands compound interest, earns it, he who doesn’t … pays it. It is the most powerful force in the universe.”
You can make a pre-tax contribution to your retirement fund every year. A pre-tax contribution means you are allowed to contribute up to 27,5% of the higher of your taxable income or salary before any deductions are made, capped at R350 000 per year.
You are also allowed by the government to invest R33 000 per year (up to a maximum of R500 000 during your lifetime) of after-tax money in a tax free investment (TFI) account.
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“I will never be an old man. To me, old age is always 15 years older than I am.” – Francis Bacon
In years gone by, people used to work, regardless of their age, until they no longer physically could. In 1916 the German authorities decided that 65 would be the age when Government retirement benefits would kick in for its citizens, according to time.com. Other countries soon followed in Germany’s footsteps and the retirement age of 65 has been contested ever since.
The problem today is that governments can’t sustain their growing ageing populations with pension payouts for so long. The ability to grow older and live longer also means that most people will need a lot more money to cover their retirement and medical costs. Today, many countries are gradually increasing their retirement age. Dutch citizens retire at 68 and Denmark is aiming for a retirement age of 72 by the year 2035.
Sixty-five is no longer viewed as the onset of old age but rather the start of middle age. Depending on your health, you might consider to postpone your retirement or to view it, not as a slowing down, but as an opportunity to “rewire” yourself. Working longer means more time to save and grow your retirement investments and reap the benefits of compound interest. Ironically, studies also show that people who work longer, live longer and healthier lives.
How can you rewire yourself during retirement? Rosabeth Kanter, professor of business at Harvard Business School, says the first step is to eliminate the term “retirement” by inventing a new stage of life: the new career arc. Many also refer to this as the second career. Here are some examples:
Age is but a number and you are only as old as you heart feels. Perhaps we should follow in the Japanese tradition where a person’s sixtieth birthday, Kanreki, is viewed as an important rebirth. This rebirth signifies the completion of a life cycle. It is a celebratory and symbolic return to childhood that encourages you to play and explore. The person who reaches Kanreki, rekindles his or her adventurous spirit and grabs the second chance to do everything he or she has always wanted to do but never had the time for. What are you waiting for?
Sources: time.com, brainyquote.com, japantimes.co.jp, schoutenzekerheid.nl, boomingencore.com, newretirement.com, bbc.com
A beneficiary is a person that you nominate to receive all or a percentage of the money from your policies, certain investments and retirement funds such as your retirement annuity and preservation fund when you pass away. You can nominate one person or more than one, and choose the percentage you want every beneficiary to get.
The Pension Funds Act says that the trustees of a retirement fund must decide how the money will be paid out when you die, and who must receive it. The trustees have to identify the dependants and nominees and then decide what will be the most fair and reasonable way to divide the money among them.
A dependant is any person that was legally or financially dependent on you at the time of your death. There are also dependants that you would have had to look after in future, such as an unborn child or elderly parent. Dependants get preference above nominees, but the trustees will use your list of beneficiaries as an invaluable guide to determine both dependants and beneficiaries.
Can you remember who you listed as the beneficiary for every financial product that you own?
Our life circumstances continuously change: through marriage and divorce, the addition or loss of dependants, for example a baby is born or you lose a parent, or the number of people who are financially dependent on you.
Keep tabs by keeping a list of the beneficiaries that you have nominated for different products, as well as the percentage that you allocated to each beneficiary. Also contact the different institutions and update your list of beneficiaries if your circumstances change. It is good to do this yearly so that you do not forget.