Your saving, retirement, and investment questions answered

PSG answers readers’ questions on saving, retirement and investment. File photo

PSG answers readers’ questions on saving, retirement and investment. File photo

Published Jun 29, 2024


As a 25-year-old female aspiring to buy a house, I’m eager to start saving for the necessary deposit. Please share some practical tips and strategies to begin saving effectively.

Chrisley Botha, Wealth Adviser at PSG Wealth:

Embarking on the journey to homeownership at 25 is commendable. Saving for a house deposit can be challenging, but with the right strategies, it’s achievable. Here are practical tips to get started:

Set a clear goal: Determine the price range of homes you're interested in and calculate the deposit required. Banks typically require a deposit of 10-20% of the property value. For instance, if you're looking at a R1 million house, aim to save at least R100 000 to R200 000.

Create a budget: Develop a detailed budget that tracks your income and expenses. Identify areas where you can cut back, such as dining out or entertainment, and allocate those savings towards your deposit fund.

Open a dedicated savings account: Consider opening a high-interest savings or investment account specifically for your home deposit. This keeps your savings separate and earns you interest, accelerating your progress. A flexible unit trust portfolio or a high-interest savings account are good options.

Automate your savings: Set up a monthly automatic transfer to your savings account. Treat it like a non-negotiable expense to ensure consistent progress, and make sure to include it in your budget.

Timeline and risk profile: Your savings timeline influences the type of account and risk you should consider. For short-term goals (one to two years), prioritise safety with low-risk options like high-interest savings accounts or fixed deposits. Medium-term goals (three to five years) can include low to moderate-risk investments such as bonds or conservative balanced funds. Long-term goals (five years plus) allow for higher risk tolerance, potentially incorporating equities or local and offshore funds for greater growth, though with increased volatility.

Stay disciplined: Saving for a deposit requires discipline and patience. Regularly review your progress and adjust your budget as necessary to stay on track.

By implementing these strategies, you’ll be well on your way to achieving your goal of homeownership. Remember, every bit you save brings you one step closer to your dream home.

With six months remaining before my retirement, I am considering my pension options. Should I take my pension benefits as a lump sum or opt for a monthly payout? What factors should I consider when making this decision?

Ben Vermeulen, Wealth Manager, Outeniqua:

Deciding whether to take your pension benefits as a lump sum or opt for a monthly payout is a complex decision that depends on your individual circumstances. The amount you can take as a lump sum may also be limited, depending on whether you are currently contributing to a Pension Fund or a Provident Fund.

There are several factors to consider:

Lump sum option

If you opt for a lump sum, tax considerations are crucial. In South Africa, the first R550 000 of retirement lumps sum is tax-free. However, amounts above this are taxed, according to a sliding scale, at rates between 18% and 36%. For instance, on a R5 million lump sum, the tax exceeds R1.5m, significantly reducing the net amount received.

Monthly income option

Choosing a monthly income still allows for an initial lump sum withdrawal (taxed as above). The remaining pension benefit can then be used to purchase a guaranteed annuity or a living annuity, providing a steady monthly income.

A guaranteed annuity offers a fixed monthly pension for life. The pension amount depends on factors such as the value of the pension benefit used to purchase the annuity, the pensioner’s age, spousal benefits and desired annual increases.

A living annuity is flexible allowing withdrawals of 2.5% to 17.5% of the capital per year. However, the pensioner bears the investment risk, and the capital could be depleted before death. Upon the pensioner’s death, any remaining capital goes to the nominated beneficiaries. The capital does not form part of the estate if it pays to a nominated beneficiary.

Some financial institutions offer a hybrid annuity, combining elements of both guaranteed and living annuities. It is also possible to take a combination of a lump sum (potentially tax-free) and a monthly income.

Given the complexities and significant financial implications of this decision, consulting with a qualified financial adviser is essential. They can provide personalised advice based on your financial situation and goals, ensuring you make the best choice for your retirement.

I am a 30-year-old single mom looking to invest in my one-year-old’s education. Which products would you recommend I look at to ensure my son’s education is taken care of when the time comes?

Richus Nel, Financial Adviser at PSG Wealth, Old Oak:

Well done on starting to plan for your child’s education while he is still young! It is important to remember that having an emergency fund, long-term risk provision and retirement planning should also form part of your financial plan and should be taken into consideration when you look at education savings. The cost of quality education in South Africa and abroad has grown significantly faster than the respective inflation rate. Setting a minimum investment return target of inflation +3%-4% over the long term after tax/costs is recommended.

Optimise tax and costs

You can either invest in your own name or make the investment in your child’s own name/legal capacity. You could consider using a tax-free savings account as an investment vehicle, but if you invest in your child’s own name the contributions will count toward their own annual and lifetime limits which may affect their own financial planning objectives in future.

A voluntary investment vehicle with a reputable investment platform and unit trust manager is a good way to save for your child’s education. If the fees that you will incur is a concern for you, consider using a combination of active and passive (index-tracking) investment managers to lower costs.

Structuring and withdrawals

The next step is to decide on the underlying investment strategy. A “bucket system” is an effective approach to provide for longer-term growth as well as drawings when education fees need payment. A “bucket system” entails allocating your savings to different asset classes depending on the term of the investment:

Short-term investment to provide for immediate access: (one to two years) with conservative fixed-interest investment instruments.

Medium-term to provide for steady growth: (three to five years) with low to high equity balanced funds.

Leave the remainder in an aggressive growth bucket for long term growth (up to 100% equity exposure).

Some institutions offer a discount for upfront tuition payment. Compare this discount with the expected rate of return if you were to invest the same amount over the period.

Local and offshore: As part of your investment strategy consider including both local and offshore exposure. However, keep in mind that emerging versus developed market investment return cycles can be extremely long.

Between 2000 and 2010, the MSCI All World Index yielded ±0% in both ZAR and USD which can be damaging to any education plan of between seven and 21 years. I therefore suggest a diversified investment portfolio (local and offshore assets). Avoid a one jurisdiction and one currency investment approach.

It is best to approach a certified financial planner so that the necessary contribution calculations can be made.

In five months, I will be receiving my 13th cheque. I plan to use one-third of my bonus and save or invest the remaining amount. What are the best options to ensure maximum interest earned on the saved or invested portion?

Jac de Wet, Wealth Manager at PSG Wealth Somerset West:

Firstly, well done – few people have the restraint and prudence to save and invest a significant portion of their bonus. Your plan is a commendable financial strategy.

So how do you make the most of your bonus? If you have any debt, the priority should be committing a portion of your bonus towards reducing it. By paying towards debt, you effectively earn a return equivalent to the interest rate on that debt.

It quite literally “pays to pay” the debt. Start by determining the interest rates on your debts, and work from there. Typically, high-interest debt like credit cards should take precedence.

I am assuming that you are already making regular contributions to your retirement savings. This is so important that it almost goes without saying. Another assumption is that you are not planning to withdraw any of the invested bonus in the short term.

To get to the core of your question, as far as maximum interest/growth on investments go, equity is a great wealth multiplier. A well-diversified, high-equity portfolio would be a good strategy for a long-term investment. A voluntary investment product at a reputable financial institution will allow you to create such an investment.

If you want to take a medium-term approach, the same investment can be structured with lower risk (and return).

By tackling debt first and then exploring growth-oriented investments like equities, you are well-positioned to maximise the potential returns on your 13th cheque. As always, it is always best to consult a financial adviser.

I am in the process of setting up my first business. As a first-time entrepreneur, the world of commercial insurance is relatively new to me. Could you please share some of the top insurance considerations I should keep in mind?

Karen Rimmer, Head: Distribution at PSG Insure:

Congratulations to you! From the outset, it’s important for you to ensure that you are safeguarding your operations with the right kind and level of cover.

One of the first steps is to ensure that all your business assets are covered for their correct replacement value. This also includes having sufficient cover on your premises to protect you against situations such as storms or a fire – as well as having cover for your All Risk items that you carry with you to and from work.

Next, it’s important to explore Business interruption cover, as well as Public Liability insurance. These can help to keep your business operational should an unexpected incident occur – or if a third-party claim is brought against you.

Finally, having cyber insurance is crucial. Whether your business operates completely or partially online, you could be at risk of cybercrime. While larger businesses will be more appealing for cyberattacks, criminals continue to be sly and desperate, and the size of a business doesn’t really make a difference.

Alongside your cyber insurance cover, you should also have processes in place around the accessibility of data to manage the impacts of a security breach. Unfortunately, fraud is also rife in the business world – so having fidelity insurance in place to protect your business is non-negotiable.

For more information about the type and level of cover you’ll need, speak to an adviser, who will help you to address and manage your risk exposures as effectively as possible.