Money Heroes
Money Heroes is an empowering series that gives you expert advice from our Momentum Dream Team to help you on your road to financial well-being. This season starts by discussing the importance of life insurance and its significance for you.
Important considerations for retirement planning
In the sixth episode of Money Heroes, we discuss the important considerations for retirement planning.
Emda Fourie, Head of Employee Benefits Consulting at Momentum Corporate, explains how the upcoming two-pot retirement system will impact your retirement savings.
Although the two-pot retirement system allows you to access a portion of your savings, Theo Vorster, CEO of Galileo Capital, cautions against using this unless it’s absolutely necessary.
Finally, Yolandi Martinez, Financial Adviser at Consult by Momentum, emphasises the importance of regularly updating your beneficiaries.
Watch Emda Fourie explain the two-pot retirement system:
Understanding the two-pot retirement system
The two-pot retirement system, expected to come into effect on 1 September 2024, will change how we think about retirement planning, says Emda Fourie, Head of Employee Benefits Consulting at Momentum Corporate.
It has been implemented so that everyone has access to savings for emergencies.
How it will work
Under this new legislation, all retirement savings from 1 September 2024 will be split into two pots:
1/3 = your savings pot
One-third of your retirement contributions goes into your savings pot. You can withdraw a minimum of R2 000 once every tax year to use for a financial emergency.
2/3 = your retirement pot
Two-thirds of your contributions go into your retirement pot, which you can only access at retirement.
Your savings pot will get a once-off boost, known as the vested component, from the money you’ve already saved towards your pension fund until 31 August 2024.
This amount will be 10% of your retirement savings but capped at a maximum of R30 000. The balance of your vested component will be protected as the two-pot rules won’t apply to it.
Be aware of the tax implications
While you can withdraw from your savings pot once every tax year, Fourie cautions against this.
“Any withdrawals you make will be taxed at your marginal rate, which is higher than at retirement.”
If you earn R300 000 per year, for example, you are taxed at 26%. That means if you withdraw R10 000 from your savings pot, R2 600 will be deducted and paid to SARS.
Additionally, this will reduce the total amount you have saved for retirement.
Watch Theo Vorster explain why saving for retirement is an investment:
Your future is an investment
Saving for retirement is both a long-term goal and an investment.
“Everyone wants to be financially independent as they get older and be able to sustain a specific living standard,” says Theo Vorster, CEO of Galileo.
However, one thing that can quickly destroy this dream is withdrawing money from your pension fund.
Vorster explains this usually happens when people change jobs or retire early.
“The money you put into a pension fund is there for when you are older and no longer able to generate an income. It is not a pot of money to dip into.”
Although the two-pot retirement system will allow you access to savings, Vorster cautions against taking money out of your retirement fund.
He urges that this should only be done as an absolute last resort.
Watch Yolandi Martinez speak about the importance of thinking about your loved ones.
Update your beneficiaries often
A beneficiary is someone you choose to receive all or a portion of the money from your policies, certain investments and retirement funds when you pass away. Nominated beneficiaries are a crucial part of your financial plan.
Failing to nominate beneficiaries could result in your assets going to the unintended recipients, says Yolandi Martinez, Financial Adviser at Consult by Momentum.
For instance, if you haven’t nominated a beneficiary for your retirement fund, it may be subject to the Pension Funds Act, which allows the trustees of your pension fund to decide who receives your benefits.
In addition, there may be tax implications for your beneficiaries. For this reason, it’s essential to keep your beneficiaries’ information up to date to reduce the tax burden on the estate and allow for an efficient transfer of assets.
The process is straightforward – simply get in touch with your financial planner, policy provider or retirement fund administrator.
As life changes, so too should your financial plan. “Keep your legacy alive by providing for your loved ones as you intended,” says Martinez.
Your financial adviser can help you prepare for retirement and keep your beneficiaries current. Visit the Momentum website to find a financial adviser near you.
Financial success is as unique as a fingerprint. That’s the beauty of defining your own aspirations and ambitions. With two tough years of living through the pandemic and an increasing cost of living, it will take great introspection to be honest about where we find ourselves and seek help when we need it, especially from an expert.
The right advice can propel you forward.
Ready to begin your journey?
Financial success is as unique as a fingerprint. That’s the beauty of defining your own aspirations and ambitions. Getting to where you dream of takes grit, determination and most importantly, honesty.
With two tough years of living through the pandemic and an increasing cost of living, it will take great introspection to be honest about where we find ourselves and seek help when we need it, especially from an expert.
The right advice can propel you forward. Our financial advisers have a vested interest in you: what do you value? What are your goals? This deep discovery sets the foundation for a relationship that will bear fruits of success.
Ready to begin your journey?
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