Savings Month may be over, but Fin24 users are still brimful of ideas on how to make the most of their hard-earned pennies. User Ian Shortreed presents his family’s saving strategy:
Building up sufficient savings for eventual retirement does require a broad, yet focused approach over a reasonably long period of time, made up of a combination of each of the following factors:
Safe as houses
– Purchase one’s own residential property.
– Financing this purchase with an access mortgage bond facility. Try to negotiate this facility at a
rate below prime.
– Pay off a higher than required monthly instalment, either every month or as and when one receives
additional income, i e any bonus of sorts.
– Maintain your residential property on an ongoing basis so as to optimise its eventual resale value,
– Take out essential insurance that offers a ‘no-claim’ refund bonus every few years.
– Invest in suitable unit trusts on a monthly basis, even if a relatively small amount every month. As the years go by, this can be regarded as your emergency fund, as funds can be reasonably easily
obtained as and when needed.
– Optimise personal taxation benefits, ideally for both tax registered spouses, by investing in fully
transparent retirement annuity funds.
Teach the children well
– Educate your kids well, so that they are able to stand on their own two feet once they have qualified
and start working.
– Let your kids know that you are planning to adopt a SKIN approach to inheritance (Spend Kids’ Inheritance Now), so that they need not concern themselves about having to provide for you in your older years, while accepting that there is unlikely to be much money left over for them to inherit.
Be well prepared pensioners
– Build up your own ‘medical expenses’ emergency fund, especially if not registered medical aid members.
We opted for high level medical insurance cover with a residual value to be paid out at the age of 70.
– Purchase new cars just as you are about to retire and finance them fully out of your access mortgage bond, if possible.
– Upon eventual retirement, take the maximum tax-free portions of you RAFs and pay off all/as much debt
as possible. Reinvest whatever is left over.
– Take out a living annuity, investing the capital in a well-designed portfolio of both local and international
investment products. The use of a reputable financial adviser is recommended for this purpose.
– Keep fully aware of issues such as capital gains tax, donations tax (inter-spousal), retirement benefits,
medical expense deductions, tax-free interest allowances, personal tax rates and tax rebates, which
become more significant as one gets older.
– Balance your own and your spouse’s investments and income so as to optimise, as much as practically possible, on the net tax payable by each party every year.
Live well within your means
– Monitor your living expenses on a monthly basis and try to live well within your means. Many shops offer
‘pensioners discounts’ on certain days of the week, so be aware of them and shop accordingly as necessary.
– Downscale into a more practical residential property, which can either be purchased or rented. Seriously
consider a long-term property rental option, which should avoid tying up capital in a non-income earning
My wife and I are moving into our late sixties and are hopefully now in the position of being able to reap the benefits of our savings strategy as set out above, which should, all things being equal, continue to give us the reasonably comfortable lifestyle to which we have been accustomed for all the years to date.