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Retirement Planning 101

  02/15/10 11:03, by Len, Categories: Personal Financial Management, Retirement Planning

Source: Article by Shirley Passanah —

'Retirement planning 101' first appeared on on 5 August 2008. It is the most read 'Personal Finance/Retirement' article of the past year.

What reasons could there possibly be why you're not saving for retirement?

1. I am too young to start saving for retirement and still have many years to go.
2. I cannot afford to save for retirement and would rather pay more into my bond or invest in another property.
3. My partner says I should not waste my money. He/She will take care of me and we should invest in other assets.
4. Retirement annuities are not what they seem to be.

Why these reasons fall flat:

1. Compound interest is the eighth wonder of the world and no one is ever too young to start saving for retirement. Like almost everything on earth, the younger the better!
2. If you wait until you can afford to start saving, you will never be able to. Paying more into your bond is always a good idea, but the reality is most people take more out of their bond than they put into it while the dream of another property in most instances remains a dream.
3. With the divorce rates as high as they are and the numbers of broken relationships increasing all the time, it seems rather a futile argument to rely on someone else's generosity.
4. Even the government understands the importance of retirement planning and as such has made retirement annuities the most attractive vehicle for planning for one's retirement.

An inconvenient truth:

Less than six percent of South Africans will be financially secure when they retire. The remaining 94 percent will depend on their children, state pension or their inadequate pension or provident funds.

How does one go about supplementing your current retirement plan? One needs to use retirement vehicles consisting of all these assets classes:

* Cash
* Shares
* Bonds
* Property

How does one go about investing in all of the above? By making use of financial advisors who will assist in putting plans together that meet your retirement planning needs.

There are numerous advantages of going the retirement annuity route

One of the more popular methods to save for retirement is, unsurprisingly to those in the know, investing in an retirement annuity. There are numerous advantages of going this route including:

* Creditors cannot touch it.
* You contribution is tax deductible — up to 15 percent of your non retirement funding income.
* The fund is taxed at zero percent. This has come down from 18 percent in the last two years, whereas your other investments are taxed at 30 percent.
* It is a flexible investment as you may increase and make additional payments to it when you like.
* Once a retirement annuity is three years old it becomes an 'investment in good faith' and can be paid out overseas should you not be in South Africa.

This is not the only route, however. You can also supplement your retirement planning by also making use of unit trusts, shares and savings plans.

How will you be sure that you are one of the six percent that will retire comfortably? By contacting a financial advisor today!

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