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A retirement annuity (RA) has the following characteristics that make it the ideal retirement savings vehicle:

  1. The contributions paid into an RA are tax deductible up to a maximum of 15% of non-pensionable income, so SARS is effectively sponsoring a part of clients’ retirement savings! But what is non-pensionable income? Let us assume for the moment that the client is in full-time employment, and is remunerated by means of a basic salary plus bonuses and commissions. If the client is a member of a pension or provident fund and all of his or her basic salary is pensionable, while commission and bonus are not pensionable, he or she may claim 15% of his or her commission and bonus as a tax-free deduction to an RA. However, if the client is not a member of a pension or provident fund (for example, if he or she is self-employed) all remuneration is non-pensionable, and he or she may claim up to 15% of remuneration as a tax-free deduction to an RA.
  2. RA investment returns are not subject to income tax, capital gains tax or dividend tax. This means no matter how much your clients gain in terms of investment returns, they will not be taxed on any of these gains.
  3. The lump-sum payout at retirement (a maximum of one third of the accumulated benefit) or on death may be tax free within certain cumulative limits that apply to lump-sum payouts from all retirement savings vehicles, which is currently R315 000.
  4. Upon death any benefits paid out from an RA are free of estate duty.
  5. Part of an RA can be used to cover medical expenses when your client retires. After 65 all medical expenses are fully tax deductible.
  6. And last but not least: clients defer the payment of income tax. They are taxed on their regular RA income in the same way they are taxed on their regular pre-retirement income. However, post-retirement income will likely be lower than pre-retirement income, thus bringing along the possibility of being taxed at a lower marginal tax rate.

One thing to remember is that by investing in an RA you are ‘locking in’ the client’s investment until normal retirement age. So the soonest he or she can withdraw anything from the fund would depend on the fund rules, but this is normally age 55.

However, this is not necessarily a bad thing, as the client will not have to exert the self-discipline required not to touch any funds earmarked for retirement, which can happen so easily in a discretionary investment when times are tough.

Now that we have determined an RA is a good vehicle to use for funding retirement savings, the focus must shift to which RA to use.

How much do you need to save for a comfortable retirement?

The answer is “it depends.” (If you don’t like that, try “as much as possible.”)

The problem with retirement planning is that so much is unknowable – no one number or percentage rate quite cuts it  – and any formula depends on a mountain of factors, including: your savings rate, how many years of work remain, the rate of return on your investments, and how long you live.

We took a look at some retirement planning strategies to help savers figure out if they’re on track. As with most tools and calculators, these are guides – not hard and fast decrees.

The “16.6% rule”

One study by Wade Pfau, CFA and professor of retirement income at The American College in Bryn Mawr, Pa., analyzes what he calls “safe savings rates,” which is how much of your income you need to save per year to fund your retirement. 

What he's found is that saving 16.6% of your salary every year is the safest minimum rate you can use to finance a comfortable retirement.

This number assumes the baseline retirement saver wants to replace 50% of his pre-retirement income (which does not include Social Security benefits here); will spend 30 years saving and investing and will spend 30 years in retirement. It also assumes his investment allocation will remain steady at about 60% stocks and 40% fixed income. (Pfau used historical market data going back to 1871 and targeted a 4% withdrawal rate in retirement.)

Given Pfau’s assumptions, a worker who’s 35, making R800,000, and aiming to retire at 65, should save at least R130,296 a year.

Of course, bumping the replacement rate to 70% of income leads to significant increases in minimum savings rates.

There are additional caveats Pfau appends to his conclusions. For instance, he excluded portfolio management fees to be consistent with most existing research. Introducing a fee of 1% of assets deducted at the end of each year would increase the baseline safe savings rate considerably, from 16.6% to around 22%.

Give or take a couple percentage points…

T. Rowe Price offers a simpler guideline. “If someone were to ask me ‘how much should I save for retirement?’ our answer is at least 15% of your salary,” says Stuart Ritter, a vice president and certified financial planner at T. Rowe. (This assumes you want to replace 75% of your pre-retirement income -- about 50% from investments and 25% from Social Security benefits.) This is “a reasonable number for most people in most situations,” he says. But you can refine that number further by factoring in your age and how much you’ve already saved. For example, if you’re 45, making R800,000 and have already saved twice that amount, you should aim to save 22% of your salary.

Some take another approach

They say the focus, instead, should be on how much you’re spending. “The better approach is to take control of spending and try to slow its rate of increase… It's crucial to keep future spending from rising as fast as future income,” he says.

No matter which benchmark you rely on to guide your own retirement savings path, they all underscore one key message, as Pfau says in his research: “Starting to save early and consistently for retirement at a reasonable savings rate will provide the best chance to meet retirement expenditure goals.”

The other question is, when and what do you see as retirement?

By This email address is being protected from spambots. You need JavaScript enabled to view it., MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Warning: 100-year megafires, 100-year megafloods, 100-year droughts and all the other 100-year-cycle climate-change and global-warming disasters that are supposed to happen somewhere around the world once a century? Science is now telling us they’re happening every 100 days or less. And that’s not only costly for the world, the news is bad for climate-science deniers.


Reuters
A resident rides down Main Street with his dog in Jamestown, Colo., after a flash flood destroyed much of the town, Sept. 14.

Breaking news tells the real story ... Colorado flooding out of control... Arizona megafires ... Oklahoma tornadoes ... Jersey Shore’s superstorm ... Yosemite Rim fire ... Africa floods ... hurricanes in Mexico... Japan’s typhoons ... Chinese earthquakes ... Corn Belt losing half its ground water. The climate-disaster news is so relentless, our minds have to tune it out to keep our sanity. So we distract ourselves in television, get lost in social media, focus on America’s dysfunctional political drama.

Yes, our 21st century is being hit with an accelerating frequency of bigger, more powerful natural disasters and losses. As the Georgetown Climate Center put it: “There is a significant upward trend in the insured losses caused by extreme weather events. This is true for primary insurance, which is impacted by an increasing attritional loss burden caused by severe local weather events, as well as for reinsurance losses caused by large-scale catastrophic extreme events.”

The climate-science deniers can deny the trend all they want, but one thing is certain from this relentless stream of climate-disaster news: Our insurance costs will just keep going up, up, up thanks to the accelerating pressure driving all these relentless climate disasters.

Fortunately, a brainstorm just ignited in the global insurance industry’s collective consciousness, triggering a new paradigm. Insurers are capitalists in business to make a profit. They can’t continue relying on 19th century rules-of-thumb and outdated formulas. Nor can they let the myopic rhetoric of today’s science deniers influence insurance rates and policies.

In the future, science, technology, big data dominate insurance costs

In today’s high-tech, big-data, science-driven capitalism, insurers can’t make money using century-old, seat-of-the-pants, hand-me-down, 100-year-disaster recurrence formulas that no longer reflect the 21st century’s accelerating trends. The truth is, so-called 100-year disasters are often repeating about as fast as every 100-days.

Starting now, climate-science deniers can babble all they want — Big Oil, Koch Brothers, the U.S. Chamber of Commerce, lobbyists and extremist politicians — all those climate-denying Luddites can rant and rave all they want about their myopic ideologies, unprincipled obstructionism, underlying greed, and tout their made-up scientific reports. They can pay off academicians to write articles and make speeches to cast doubt on legitimate climate-change science. And they can buy all the national ads they want to degrade climate activists like Greenpeace, Tom Steyer, Bill McKibben and his 350.org global army fighting to stop the Keystone XL pipeline from polluting America.

But soon, all the science-deniers’ noise won’t matter much. And no new climate-science legislation will be needed ... No grand bipartisan political bargain will be necessary ... No long, drawn out, costly lobbying efforts called for ... No new worldwide campaigns to support climate change ... in the future, insurance costs will be based on real climate science.

No more reliance on outdated 100-year-cycle rules-of-thumb

That’s right: No more 19th century shoot-from-the-hip guesswork and actuarial mumbo-jumbo about 100-year megafires, 100-year megafloods, 100-year droughts and all the other 100-year weather disaster myths that are supposed to happen once a century, or any other outdated rules of thumb concocted so the insurance industry could appear like a reasonable capitalist business.

Yes, the global insurance industry has been shocked awake. They’re even calling their new vision a “paradigm shift.” Science based on current data and research is now killing off outdated urban legends, folklore and mythology about insurance. A rule-of-thumb formula about this or that 100-year occurrence, or 60-year, or whatever weather disaster frequency cycle can now be better estimated by today’s high-tech, big-data, science-driven research using new statistical algorithms.

No more reliance on science-denialism and obstructionistic nonsense for anyone, especially not for insurers who want to stay in business in an age of accelerating high-cost megadisasters. The New York Times got it right in “Mutually Insured Destruction ... Denying climate change isn’t just foolish—it’s bad for business.” Insurers get it.

New insurance industry report: Climate change is accelerating

Back in June, the Geneva Association for the Study of Insurance Economics published a report that defines the future direction of climate change science: “Warming of the Oceans And Implications for the (Re)insurance Industry.” Formed in the 1970s, the Geneva Association is now the industry’s leading global insurance think tank for “strategically important insurance and risk management issues.”

The association is the spokesman for the world’s most powerful insurance groups. Membership is made up of 90 CEOs from the world’s top insurance and reinsurance companies, operating worldwide through a network of industry power players. They develop strategies for risk management in today’s uncertain global economy. Their “annual General Assembly is the most prestigious gathering of leading insurance CEOs worldwide.” The association’s new report focused on six megatrends impacting the future of climate change, summarized here:

1. Warning: Climate change accelerating, potentially irreversible

“New scientific evidence that the world’s oceans ... warmed significantly ... ocean energy is the primary cause of extreme climate events ... increasing the number of insurance-relevant hazards ... a near irreversible shift ... even if greenhouse gas emissions stopped, ocean temperatures would keep rising.”

2. Climate change accelerating, negative impact on global economies

Warning: “in some high-risk areas, ocean warming and climate change threaten the insurability of catastrophic risk more generally.” A separate Scientific American research study estimates the cost to global economies at $60 trillion. The Guardian called it an “economic time bomb” that will “undermine the global financial system.”

3. More ocean water, rising levels, bigger risks

“Thermal expansion of the oceans ... melting of continental ice shelves and glaciers has increased global sea levels ... the rate is accelerating ... rising sea levels increase the risk of flooding ... storm surges ... decreasing the protective life span of coastal infrastructures such as Dutch flood dikes or the Thames barrier ... Sea-level rise also increases the damage potential from geophysical events.”

4. Extreme weather: both drier dries and wetter wets

“Warmer oceans ... means more water ... warmer atmosphere ... more energy ... increasing the intensity of extreme events ... associated precipitation ... and increasing the loss potential of natural catastrophes.”

5. Risk analysis estimates, paradigm shift looks to future, not past

Geneva’s report is quite clear ... “traditional approaches based solely on analyzing historical data no longer work in making risk assessments today: A paradigm shift from historic to predictive risk assessment methods is necessary” using new “scenario-based approaches and tail risk modeling.” Science is beating denialism.

6. Unpredictable unknowns triggering bigger climate catastrophes

“Warming of the oceans ... affecting ... large-scale climate patterns ... however, due to the long time scales of ocean dynamics ... and the relatively short length of observational data ... the effects of those changes on catastrophic risk ... unclear.”

Bottom line on climate change: McKibben says it “might already be too late.” No, smart money is betting on the insurance industry’s new paradigm shift: For too long Big Oil and other climate-science deniers have been shifting the burden of their short-term profit strategies to the public. The insurance industry’s paradigm shift will change all that.

To put it simply, estate planning involves deciding how you want your assets distributed after you die (or become unable to make your own financial decisions). Estate planning can be complicated, so it's best to consult a financial adviser and a lawyer when drawing up your estate plan.

It's important to have a basic estate plan in place regardless of your net worth. Although it may seem like a morbid chore, estate planning offers several benefits:

  • You get to name the people to whom you wish to give your assets - and your wishes will be legally binding.
  • You can arrange it so that taxes siphon as little as possible from your estate.
  • You have the satisfaction of knowing that your financial affairs are in order, so you won't bequeath a costly administrative nightmare to your loved ones.

An estate plan can include several elements:

  • A will
  • Assignment of power of attorney, which gives the person you name the authority to manage your financial affairs if you are unable to do so
  • A living will, which is a statement of your wishes for the kind of life-sustaining medical intervention you want, or don't want, in the event that you become terminally ill and unable to communicate
  • A healthcare proxy, which authorizes someone you trust to make medical decisions on your behalf.

For some people, a trust may also make sense.

Insurance contracts have all the details about what you should know, but who reads that whole document?

Some of the simplest things you should know, which are common with each insurer is:

1.      Your tires need to be in good shape. That means, it should be above the little bump guide between the groves of your tyre.

2.      Insurance do not pay out when you are involved in illegal driving, like over limit with alcohol. Get insurance who have a collect service on a wedding night out or something.

3.      Never admit an accident was your fault. Say you are sorry, it was an accident, it happened so fast but refrain from admitting it was directly and only your fault.

4.      Take picture as soon as possible from every angle and most detail the better especially if it wasn’t you who caused the accident. It helps with claiming back your access payment from other parties insurance.

5.      Get yourself the best car rental inclusion as part of your policy especially if you only have one car.

6.      Make sure you understand the details of comprehensive insurance and when you change plan, confirm they give you the same for that smaller premium and not just simply changing the plan to less insurance.

7.      When they say all your items are covered under comprehensive insurance, make sure the value that is covered is enough for the items or you will need to specify them.

8.      Items in cars, like laptops need to be hidden, like the boot.

There are many more and you can contact us for comprehensive check of your insurance needs.

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