A Fin24 user is a single mother who wants to start saving for her children's education as well as her own retirement. She writes:
I'm a single mom of 8-year-old twins. I would like to start saving for their university studies and I'm also looking at saving for my retirement.
I'm 37-years-old and I don't have any form of savings. Please advise.
READ: Saving for my children's education
Gustav Potgieter, a Certified Financial Planner (CFP®) of the Aurum Trust, responds:
Provision for university studies for the twins
Unfortunately I do not have a lot of info regarding your income, etc. so I will cover different avenues.
The government and the Association for Savings and Investment South Africa (Asisa), started an initiative, called Fundisa to help parents to save for their children's education.
It is, however, not well marketed, because there are no commissions or fees payable to the adviser.
You can get a 25% enhancement on your savings - up to a maximum of R600. This investment is in low risk Fundisa funds, which are offered by a couple of asset managers. It is a low risk investment for a parent, with a guaranteed booster of 25% per annum, up to maximum of R600.
There is a condition that the household income may not exceed R180 000 per annum and the 25% falls away if the money is not utilised for tertiary education. The investment is transferable from one child (not necessarily your own) to another, up to the age of 35.
If this is not applicable, I would suggest a unit trust investment for the children, for tax reasons, as well as the low costs, rather than education policies (tax is paid in the policy by the life assurer).
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Your own retirement plan
You can save in various retirement vehicles, of which a retirement annuity is probably the best. You can deduct up to 15% of taxable income for tax purposes and the SA Revenue Service (Sars) will help you save by giving you a tax "discount" on premiums at your marginal rate.
For example: If your marginal tax rate is 30% and you contribute R1 000, Sars will effectively pay R300 of that premium via a lower tax burden.
The next step is to find the right investment vehicle for your retirement annuity. Most of the options offer the same investment choices these days, but the main issue is the costs.
You can either go for a policy based retirement annuity or a unit trust based retirement annuity. The policy based retirement annuity is the much better option for the person selling it, because of the higher upfront commissions, but you, the investor, will be liable for penalties on exit or a change in the plan.
Some assurers ask up to 3.5% of asset value as an annual administrative fee. A unit trust retirement annuity is the better option, because of lower charges and no penalties on exit or change of the plan.
The investment choices are limited to Regulation 28 funds (maximum 75% in equities).
I recommend you contact a CFP to discuss your plans.
ALSO READ: What your child's education will cost
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