A Fin24 reader with several investments hopes to retire comfortably at the age of 55. He looks to an expert on how to maximise growth.
I am 36 years old with no debt. Early 2021 I will have R1.8m being paid out after a fixed deposit matures. I already contribute R36k p/a towards a Tax Free Account (Balance R200k) and R18k p/a towards a retirement annuity (Balance R220k). My provident fund is also in place (Balance R1.2m).
How do I maximize growth via guaranteed capital investments or other investments to enable me to retire at 55?
Brett Mackay, Investment Consultant & Group RA Manager at 10X Investments, responds:
Firstly, well done on being debt-free. That is typically the first place funds would need to be directed to start growing your net worth. Congrats also on taking advantage of the different kinds of tax-free vehicles, RA and TFSA, in addition to your provident fund. These should set you up for some great long-term tax-free growth into your later years.
It is also important to mention your retirement savings plan, and whether you are on target to meet it. Whatever your financial situation, it is always a good idea to start with a plan. There are many good retirement planning tools online. This simple calculator allows you to adjust inputs – such as current savings rate and desired retirement age – to work out how much you should be saving today to be able to reach your goals.
Even though you are clearly focused on retirement saving, it is not clear if you are using all the tax breaks available to you. A maximum of 27.5% of your remuneration or taxable income and no more than R350 000 (whichever is higher), is tax deductible in a tax year. You can contribute more to your RA; after you've reached these limits, your contributions are rolled forward and automatically deducted in future years. I encourage you to maximise these contributions every year if possible.
If you are not already using your full allowance, you might want to make a lump sum contribution after your fixed deposit matures to get those extra rands back from the taxman.
In terms of the Tax-Free Savings Investment, you ideally want to keep your funds invested in your Tax-Free Savings Investment for as long as you can to maximise the tax-free growth potential. If you contribute the R36 000 limit every year it takes roughly 13.5 years to max out your lifetime allowance of R500 000.
What is also great about a Tax-Free Savings Investment is the fact that you can invest in low-cost equity ETF funds that will perform better over time than just parking the funds in a money market fund. If you have children, you might also want to stash away some funds for their education, or to give them a hand in another way. A Tax-Free Savings Investment can also be set up for your children.
Another key building block for financial success is an emergency fund. As a rule of thumb, it is advisable to set aside three to six times your monthly income in a fund that is ringfenced for emergencies. You may lose your job, or a family member or close friend may need your help. Having a backup plan or a safety net gives you security when things get tough.
Apart from that, have you thought about buying a property, not necessarily as an investment, but as a home. Property is usually a great investment too. Property can also be a great way to build up a passive income via rental income.
Finally, if you have not taken advantage of your offshore yearly allowance, you could also invest the funds in an offshore investment account.
Good luck with it all!
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