Saving for retirement is important but how you go about it is a bit of a challenge. There are so many products and it’s not so easy to decide between them.
A Pension or Provident Fund is what an employer offers his/her employees to help them save for retirement, please note that not all employers offer this and if not, or you want to save even more on your own, you will take out a retirement annuity.
Pension vs. Provident Funds:
They are in many ways similar, but one important difference is the pay out when you retire: In many ways they are similar, but one important difference is how they pay out when you retire.
With a Pension Fund, you can get up to a third of the money in cash when you retire (and some of it may be taxed) and the balance you have to invest in a certain way to give you a monthly income. Whereas with a Provident Fund, you can get the full amount in cash (and some of it may be taxed) and then decide yourself where and how to invest so you can earn a monthly income.
If your employer offers you a membership in either a Pension or Provident Fund, it is normally compulsory for you to join. Sometimes the employer will decide what portion of salary will be saved (e.g. 10%), but sometimes you are given an option (i.e. minimum 5% and maximum 12%).
As you save, your retirement savings account will increase. Sometimes the value will not increase, an example will be if the economy is not going well.
A Retirement Annuity (RA) is a good option or people who don’t have a Pension Fund or Provident Fund as part of their salary package and want to save exclusively for their retirement. When you take out the policy, you must decide at what age the policy will pay out to you. This age is called the “maturity age” and in most cases you can choose an age between 55 to 70 years.
You can start saving for retirement with a minimum of R200 per month. However it is advised that you save at least between 10% and 15% of your gross salary. Meaning your salary before any expenses or tax are deducted.
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