HOW MUCH RISK COVER IS ENOUGH?

  There is no single answer to the question of how much risk cover you need.  It differs from person to person based on your specific financial circumstances and particular needs. A person with no dependants, no debt and significant retirement fund savings would clearly have significantly lower risk-cover needs than someone with a family, significant debt and minimal savings. Your life cover needs can generally be classified as follows: Protecting your financial dependants: We all want to ensure that our dependants are in the same financial position they were in while we were still alive. The amount of life cover needed to achieve this will depend on the age of your dependants, your outstanding debt and the extent to which your funding their monthly living costs. Leaving a legacy: Most people would like to be remembered when they are no longer there. Insurance products have traditionally met this need through ensuring that debts can be paid off or investments can be build up, ensuring your loved ones are in a better position to fend for themselves in the long run. Your disability needs When you become disabled you have two financial needs – a need for a cash lump sum and a need for a monthly income. A lump-sum disability benefit will generally pay out a cash lump-sum when you are diagnosed as being permanently disabled. This money can be used to settle any outstanding debts, allowing you and your dependants to maintain your lifestyles without having the burden of monthly debt repayments. It can also be used to modify your home if required. Income protection benefits pay...

WILL YOU HAVE ENOUGH TO RETIRE?

The retirement lump sum In order to retire comfortably it is estimated that we need a retirement equal to 75% of our final salary. To meet this requirement on the day you retire, you will need to have savings worth about 16 times your annual salary. So, if your annual salary in the last year of working is R500 000, you would need investment assets of R8 million to generate an income equal to 75% of your salary. The three key drivers of achieving your savings goal are: How much you save How long you save for and The return you earn on your investment. If you are close to retirement, it is easier to calculate how much you need to be saving to reach your goal, and your Financial Advisor can help you. Young savers can follow these guidelines, but on retiring at the age of 60. Age you start saving for retirement % of your total salary you should save 25 15% 35 25% 45 47% How long to save for The only way to save for longer is to keep working. If you are able to work until the age of 70, you will improve your retirement savings significantly. For example, if you start saving only at age 40 and want to retire at 60, you will have to save a massive 43% of your salary each year. If you delay retirement to age 70, you need to save only 18% of your salary. Working longer also adds to your vitality and longevity. If you can’t keep working, limit the withdrawals made from your retirement savings....

2012 BUDGET OVERVIEW IRO EMPLOYEE BENEFITS

ATTENTION ALL EMPLOYERS!!!!!!!!   In the 2012 budget the Minister of Finance made a number of proposals that are relevant to the employee benefit industry. Changes to tax treatment of retirement fund contributions: The following will take effect from 1 March 2014 and are designed to encourage South Africans to save for retirement. “Contributions by Employees and Employers to pension, provident and retirement funds will be tax deductible by individual employees. Individual taxpayer deductions will be set at 22.5%, for those below 45 years and 27.5% for 45 year and above, of the higher of employment or taxable income. Annual deductions will be limited to R250000 and R300000 for taxpayers below 45 years and above 45 years respectively (up from the proposed R200000 proposed last year) This will effectively mean that maximum contributions on income in excess of R1 111 000 and R1 090 000, respectively, will not be deductible. A minimum monetary threshold of R200000 will apply to allow low-income earners to contribute in excess of the prescribed percentages.” Some assistance will be offered to those who contribute in excess of the threshold. Non-deductible contributions (in excess of the thresholds) will be exempt from income tax if, on retirement, they are taken as either part of the lump sum or as annuity income. Contributions towards risk benefits and administration costs within retirement savings will be included in the maximum percentage allowable deduction.   FALSE JOB TERMINATIONS Employees cannot withdraw funds from employer-provided retirement schemes before retirement unless an employee terminates employment with that employer. In some instances, employees terminate their employment solely to gain access to employer-provided retirement...

EXPLANATION OF THE MEDICAL TAX CREDITS

The medical TAX CREDIT is a fixed amount that will be offset against tax payable. It will replace the TAX DEDUCTION that was granted for medical scheme contributions. According to SARS the system of tax credits seeks to bring about greater fairness. All taxpayers, no matter what their income, will derive an equal tax benefit for their medical scheme contributions as the tax credit is a fixed amount. The current system of deductions for medical scheme contributions had the effect that the higher your income the higher the value of your deductions. The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while high income earners will experience a decrease in net pay to bring about equality in the tax system for medical scheme contributions. Here are some examples to show how the new system will work. How these amounts will be influenced by the new tax rates announced by the Minister in his Budget Speech is also shown below   The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while hig income earners will experience a decrease in net pay to bring equality in the tax system for medical scheme contributions. I have some examples for those of you interested EXAMPLE 1Taxpayer A earns a monthly salary of R16040. He makes a monthly contribution of R1 203 to a pension fund and R2 263 to a medical scheme for himself and three dependants.   Tax deduction system...

HOW TO PROVIDE FOR MINOR CHILDREN PART 2- TESTAMENTARY TRUSTS VS INTER VIVOS TRUSTS

When it comes to bequeathing assets to a trust for the benefit of your children, you can either provide for a trust to be created at your death (testamentary trust) or you can use an existing inter vivos trust (which you set up during your life time). Both these options have their own benefits. An important benefit to consider when using a testamentary trust is that this trust will qualify as a special trust. A “special trust” is defined as a testamentary trust that has been created solely for relatives of the testator, where the youngest beneficiary is under the age of 21. It is important to note that this definition refers to “the age of 21” and not to “minor” and that it refers to a trust where the youngest beneficiary is under the age of 21 and not all the beneficiaries. Such a trust will therefore qualify as a special trust for as long as one of the beneficiaries is under the age of 21. Unlike a normal trust that is taxed as a flat rate of 40%, a special trust is taxed at the same progressive tax rate that apply to natural persons. If you choose to make use of a testamentary trust, the trust will be created in your Will, which will provide who the trustees will be and what powers they will have. Just like the nomination of a guardian, the nomination of the trustee should be considered carefully. This is the person who will decide, for as long as your children are below the specified age, how your children’s inheritance is invested and...