A Fin24 user in his sixties wants to know how he could invest money maturing thanks to an insurance policy. He writes:
I have an insurance policy is maturing in December 2014. The amount that I expect to receive is about R250 000.
I don't need the money immediately. I will be retiring in May 2015 and will be receiving a pension.
How should I invest the R250 000 that I will receive in December 2014? I turn 65 in May 2015.
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Phillip Kassel, financial adviser at Liberty, responds:
Ideally, when advising on how you should invest your retirement funds, we should look at your full financial situation to better understand your appetite for risk, your timing, health considerations and other factors.
However, taking the situation on face-value, it seems as though:
- The amount you will be receiving will be from an insurance policy, most likely an endowment, therefore, it will be tax-free;
- However, we need to consider that the amount you receive may very well be required when you turn 65, that is upon your retirement.
So, it would be advantageous to establish if you would need the capital amount in either part or in whole.
With that said and considering the above assumptions, I would suggest that your solution would be the tried and tested bank account.
Whilst the interest will be low and will be added to other interest earned during the tax year, you will qualify for the interest exemption (R34 500 per year once you have reached 65 years).
So, the likelihood is that the full interest amount will be tax-free if little other interest is earned during the tax-year.
Banks have a number of different savings and investment vehicles – all of which are taxable and have varying degrees of notice periods. Usually, the longer the notice period, the higher the interest rate offered.
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Therefore, it is important to look at the pros and cons of each of the options such as a 32-day savings accounts, as well as money market accounts.
Part of this suggestion is based on time-horizon constraints. Additionally, unit trusts – irrespective of how conservative they are, for example bond and interest offerings – may come with charges that are not worth paying for such a short duration, although most large asset managers with suites of portfolios on offer, usually offer money market-linked unit trusts at no fee, so this may be an avenue to explore.
My personal choice would be structured products in the form of tax-free endowments, but these attract fees and are intended for a longer term - usually five years, so more discussion would need to be had here.
In order to ensure that the right decision can be made, I strongly advise you to meet with a certified financial planner, who will be able to conduct a holistic approach to your financial plans so that the most appropriate recommendation can be made.
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