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Advice for Youth Day: Ask better questions

Asavela Gwele has heard her peers ask: ‘Why bother to save?’ As South Africa celebrates Youth Day, Asavela, who is Client Relationship Associate at 10X Investments, suggests 10 other questions millennials might ask.

1.         What are my goals and dreams?

2.         How will I fund them?

3.         Why say no to getting taxes back?

4.         What do I get out of a company pension savings scheme?

5.         How many Yolos will I be able to buy on a Sassa grant?

6.         Do I want to be dependent on my children?

7.         Why start saving now?

8.         How do I make my money work for me?

9.         Do I want to leave it until I turn 65 to discover that I won’t ever be able to retire?

10.       How much of my money am I prepared to pay away in fees?

What do I want and what do I need?

The pleasure of wearing that fab new suit or driving that new car will be nothing compared with the peace of mind you will get (over decades) from building up an emergency fund of savings. Look around and see how others are suffering because they didn’t have anything saved for a rainy day.

Also, just think how your future self will thank you for setting yourself up for a decent life in retirement. Why not join the 1% who really take charge of their retirement saving journey.

How am I going to meet those wants and needs?

There are different savings products for different goals. Whatever you can save – whether it is R500 or R5,000 – think about it carefully, make the most of tax breaks and make sure you are getting the lion’s share of any growth.

Why say no to getting taxes back from the government?

The receiver for revenue offers tax breaks to get people saving. Not using tax relief available via a retirement savings vehicle and a tax-free savings account is like saying no thanks to the government’s offer to return some of the tax you have paid. Look at options offering tax relief before you look at unit trusts or anything else.

Money you put into a retirement annuity attracts various forms of tax relief:

  • Up to 27.5% of your taxable income, up to a maximum of R350 000, is tax deductible.
  • You do not pay tax on RA investment returns, such as interest income, dividends, and capital gains.
  • You can take up to a third of your RA as a lump sum when you retire (or all of it if it’s worth less than R247,500), with the first R500 000 being tax-free.

What do I get out of a company pension savings scheme?

Many employers offer company-sponsored retirement savings schemes, which provide employees with a lump sum payment or a regular pension income when they retire (or their beneficiaries should they pass away).

Corporate schemes usually provide group risk benefits, such as cover for death, disability, severe illness and funeral cover for the member and sometimes for members of their family.

Membership of such a scheme makes saving easier because contributions are deducted from salaries, upfront, eliminating the problem of not having enough money to save at the end of the month.

You also have the comfort of knowing that your employer monitors the performance of the fund’s service providers and very likely gets a group discount on the fees charged.

Free, downloadable ebook: The South African Guide to Corporate Retirement Funds

How many Yolos will I be able to buy on Sassa grant?

For those who are spending every last cent and saving nothing because “You Only Live Once (Yolo)” the state old age grant of R1,860 per month (2020) is not going to maintain an acceptable standard of living/Yolos.

Do I want to be dependent on my children?

Only you can answer this, but your children might want a say. Also, they might not be able to afford to support you while bringing up your grandchildren. Sure, we don’t mind paying “black tax” to help our families but the onus really is on each of us to save enough money to provide for this stage in our life. There is nothing stopping your children spoiling you, of course.

Why start saving now?

The savings you make earlier in your working lifetime (ie that remain invested for the longest time) work the hardest, thanks to the miracle of compound growth. Compounding simply means that you earn a return on your savings as well as on the past returns themselves year after year. Like a snowball rolling down a hill and picking up ever-more snow with every rotation, your savings pot will grow faster as it grows bigger over the years.  Give your savings enough time, earning returns on returns, and your nest egg will grow into a very large pot, one that might have seemed totally out of reach when you started.

How do I make my money work harder for me?

To give your money to best chance to grow you will need to invest some of it in the stock market and give it time to grow. There will be some ups and downs but if you are investing for anything longer than five years you have time to ride out any volatility. Your best bet is to buy into a well-diversified high equity fund that charges low fees and prepared yourself to ride out any tough times.

Do I want to leave it until I turn 65 to discover that I won’t ever be able to retire?

The earlier you start, the easier it is. Start by creating a basic retirement plan. A good plan will help you set a goal (ie how much you need to save in order to maintain your desired lifestyle post-retirement) and tell you what you need to do to achieve it (ie how much you need to save each month). It is easier than ever to do this thanks to the range of online planning tools available. Put some basic information into the 10X retirement calculator and a personalised retirement savings plan will be generated in no time at all.

How much of my money am I prepared to pay away in fees?

Don’t be one of the many people who forfeit a large chunk of the income their savings generate by paying high fees. Costs include advisor/broker costs, administration/platform costs and investment management/fund management costs. South Africans pay, on average, 3% of their total savings balance in fees every year, compared with 1% at 10X. One or two percent extra will compound over the years to become a large hole. You can get everything else right and high fees can still sink the ship.

Once you have asked yourself these questions I doubt you will ever again wonder, “Why bother?”

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