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A Fin24 user questions the advice he is receiving from financial advisers about his investments and retirement planning. He writes:
I have consulted with a number of financial advisers on issues pertaining to investments and retirement.
My underlying concern is that they refuse to acknowledge or accomodate my current bond payments into a retirement/savings calculation.
They continue to point out that my current contribution of around 12.5% of my salary to a retirement annuity (from age 25) is below the recommended 15% and attempt to force futher investment products on me.
Why can this not be included?
I have already paid off one house and am agressively paying off the second. I also have at least 30 years to retirment remaining.
Am I missing something or are they just looking for their next commission cheque?
Fin24 asked two financial advisers at the Institute of Retirement Funds (IRFA) to respond:
Mmapula Ikaneng, IRFA deputy president, responds:
Firstly, a property is deemed property in one’s estate and is discretionary - the performance cannot be matched by a retirement product over time due to the tax saving within the retirement structures.
Nor can the contribution obtain tax deduction as this is not part of the approved benefits assigned by the Income Tax Act.
I would agree with you regarding another retirement annuity, however, the first question would be to establish if you have a pension or provident fund and then conduct a full needs analysis pertaining to retirement planning, incorporating the property as well as retirement annuity to see if the retirement goals are met.
Secondly, would be to see how tax efficient your investment strategy is. From what I read you are not running a tax efficient investment strategy.
More information is required to provide accurate advice – the above is merely a point of departure for discussion and not financial advice by any means.
IRFA director Wayne Hiller van Rensburg adds:
Knowing what income you need in retirement is the first step in retirement planning.
Working towards that goal can be achieved in many ways. Each individual's financial plan is unique and there is no single solution to securing retirement income.
There are, however, tax incentives that can significantly benefit an individual when he or she uses a retirement fund when investing for retirement.
It is important to include these tax advantages in your financial planning.
Financial planning should include various asset classes such as equities, bonds and property.
Your investments can take the form of unit trusts or other investments directly in property, to name a few.
Each of the asset classes and whether they are housed in a retirement fund will determine whether the tax treatment will in effect enhance capital growth.
All that said, you need to understand the nature of your investment and including a second property as an investment for retirement is possible where you earn an income from the asset and intend to continue using the asset to produce income or grow wealth you can access at retirement.
However, property is only one asset class that should form a part of your total portfolio.
In my opinion, and with the information you have provided, your second property should be included in your financial plan.
- Fin24
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