Invest your Next Bonus for Maximum Return

Invest your Next Bonus for Maximum Return

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Most South Africans do not retire with enough money. The main cause of this relates to individuals who leave companies and do not preserve what’s already been saved for them in their retirement fund. Consequently they lose out on the eighth wonder of the world – namely, the power of compound interest.

Money invested on a monthly basis or even a lump sum only starts to really grow 15 to 20 years later. If you have money coming out of a pension fund, make sure you re-invest it quickly.

Investment Options

Find a solution that best suits your needs. You have three choices:

1. Take the cash

Take the money and pay tax on an amount above R22 500. The balance will be taxed at 18%. This is a very low tax. However, you always get this benefit up to R600 000. If you take the cash now, when you retire, the first R300 000 is tax free, the next R300 000 will be taxed at 18%, but SARS will deduct what has been previously taken.

2. Retirement annuities

You could put this into an RA but then you are locked in until age 55.

3. Preservation fund

A preservation fund could be an option. Both options 2 and 3 are tax neutral. The advantage of the preservation fund is that you can withdraw the money at any time, subject to the tax formula above.

It’s also possible to service debt with this money, but always settle your most expensive debt first in this order:

  • Micro lending
  • Credit card
  • Overdraft
  • Bond

I encourage individuals to pay off their bonds; one must also save so that by retirement you have a home paid for, and an income. There’s no point being asset rich and income poor.

Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.