A provident fund, unlike a pension fund, allows you to take the full lump sum and you do not have to purchase an annuity. However, the tax implications are significant. You may qualify for R500 000 tax-free if you never withdrew before retirement, but the rest is taxable as per the retirement tax tables.
It may make sense to take R500 000 tax-free, if applicable, and purchase an annuity with the remaining amount.I’m an 18-year-old looking to plan for my financial future. I have lived in poverty most of my life and as such I’ve always wanted to have financial security. I am going to university on a scholarship and will be receiving a R2 000 allowance for items that are not school-related.
The first step is to draw up a budget to work out what expenses you need to cover with that R2 000 and try to save some of it. According to the Association of Savings and Investments SA, if you draw 5% of your capital each year then your income should only start to reduce after 30 years. Unfortunately we have had poor market returns over the past four years, which has worsened the situation. In a weak market, even a 5% drawdown would start to reduce your income within 14 years. Hopefully we will see improved returns from the market.Would it help to pay my car off sooner by paying extra? I was told by the dealership that it doesn’t make a difference, but my dad paid off his mortgage sooner by paying extra. I opted to buy a car worth R385 550.
Source: News Formal (newsformal.com)
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