Johannesburg - A Fin24.com user recently asked:
I am going on pension. I have no debt and some money in the money market.
What should I do with the gratuity that I am going to get? I would prefer something that will provide growth and medium risk - I am not interested in shares.
I have worked for government for 43 years and my pension should be sufficient.
I have extended our Oxygen membership. We are both healthy, and just intend to travel and see the world.
We will be relocating to live close to my son, who has a little two-bedroom house for us, free.
Jillian Kipling, acsis financial planning coach, responds:
Congratulations on retiring debt free!
It's a sad fact that not many of us do. It is also unusual to work for the same company for 43 years.
Typically 15% of your salary saved every month, incorporating the magic of compounding interest, should provide an adequate pension. This will of course depend on the average return achieved by the pension fund managers and your expected lifestyle after retirement.
A relatively safe investment, as you know, is the money market. I say "relatively" because putting all your eggs in this basket offers some risk - namely tax payable/inflation curbing real return.
So, let's look at tax first. If a person retires at 65, the rebate on interest is R32 000 per year.
At current money market rates of about 7%, you will pay tax on amounts over R456 000.
Even if you don't have R456 000 cash, the return right now is still only 7% and inflation is about 6.3%. Over time this trend tends to average out to about 1% to 2% real return on cash.
This is why some form of risk is taken by investing in shares or property.
If a person is averse to investing in shares, for whatever reason, the alternative would be to invest in property.
The easiest way to do this is to invest in listed property by way of a property unit trust. This asset class is probably almost as volatile as shares, but appears safer because, after all, its underlying investment is actual buildings.
It is, however, an option and if coupled with some cash in the money market (always a good idea for unseen expenses anyway), it's probably a medium-risk strategy.
As always, don't go blind into investing.
First do some research; learn about the various property investments, and invest in the advice of a certified financial planner.
Then relax and enjoy your retirement!
- Fin24.com
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acsis is an independent financial services group, which advises individuals and institutions on financial and investment strategies.