Avoiding needless tax deductions to your limited retirement savings is important consideration when planning for retirement.
Having a diversified portfolio is key to ensuring the security and growth of your savings and investments portfolio. This is true for all life stages of investing, those saving for retirement, nearing retirement and those that are retired.
Ilse Smuts, Business Development Head: FNB Retail Cash Investments says, “Including a Tax-Free Savings Account (TFSA) into your retirement strategy is an excellent way to diversify your savings and investments while also enjoying significant tax benefits. The tax-free growth and flexibility of the account makes them a smart addition to any portfolio. It is best to start contributing to your TFSA early so that you can benefit from the tax-free growth as you approach retirement or when you are in retirement.”
She highlights three main reasons why South African retirees should consider adding TFSAs to their retirement plans:
- Tax efficient compounding: The most significant advantage of a TFSA is its potential for compounding growth in a tax-efficient way. Whether you’re earning interest, dividends, or capital gains, all returns in a TFSA are tax-free, allowing retirees to keep more of their earnings. Even if you start later in life, reinvesting those returns ensures that they continue to grow without being taxed, which is especially beneficial for those on fixed incomes. Over time, the compounding effect can significantly enhance your savings, providing additional financial security throughout your retirement.”
- Flexibility and accessibility: TFSAs provide a level of flexibility that is unmatched by many other saving and retirement products. You can withdraw funds, tax free, at any time without incurring penalties. This is crucial for retirees who can use their TFSA savings or interest growth to cover regular or emergency expenses without having to dip into their pension income or annuity capital.
- Protection against inflation: Investing in a TFSA helps protect your savings from inflation. Over time, inflation can erode the purchasing power of your money, but the potential for competitive returns in a TFSA – without the burden of taxes – can help offset these effects. This is critical for retirees who need their savings to last throughout their retirement years.
Samukelo Zwane, Head of FNB Wealth and Investments says, “Having a TFSA product is especially important for retirees as they will be consuming tax-free growth in retirement. The income that they take from their TFSA product will not be taxed. Furthermore, it’s important that the type of TFSA selected in retirement should reflect the amount of risk you can tolerate and your investment objective.:
- Tax-free cash deposits: If your priority is safety and liquidity, a cash deposit TFSA allows you to earn tax-free interest on your deposits and access your money at any time. The FNB Tax-Free Cash Deposit Account is a stable way to grow your savings, tax-free, while ensuring funds are available when needed. This makes it a good choice for retirees who want easy access to their savings and prefer low-risk investments.
- Tax-free share investments: For retirees with a higher risk tolerance and a longer-term investment outlook, Zwane points to a share investment account as an option. “Retirees willing to accept more risk in exchange for higher potential returns should consider a TFSA like the Tax-Free Shares Accounts, that invests in top companies on the JSE,” says Zwane.
- Tax-free unit trusts: For retirees seeking a balance between growth and security, Zwane points to Tax-free Unit Trusts as a great way to customise and diversify their investment strategy based on their risk tolerance and financial goals.
“Whether you are nearing retirement or already retired, incorporating a TFSA into your savings and investment portfolio can provide tax-efficient growth, flexibility and peace of mind, with a range of tax-free savings solutions, you can tailor your investment to suit your unique financial needs and goals”, concludes Smuts.
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Phuti Mahanyele – Former CEO of Shanduka Group, current Sigma Capital Executive Chair: At 17, she left South Africa to pursue her studies, and obtained a bachelor\’s degree in Economics and earned an MBA from De Montfort University. She would also later go on to complete Harvard University\’s Kennedy School of Government executive education programme. Determined to be a success, Mahanyele joined an international investment banking company specialising in infrastructural development in New York City called Fieldstone Private Capital Group. She later became Vice-President of the firm, then transferred to the company\’s office in South Africa. After returning to South Africa, she became the head of Project Finance South Africa at the Development Back of Southern Africa. She was headhunted, and advanced to the position of managing director of Shanduka Energy, later becoming the CEO of Shanduka Group. She would go on to hold this position for 10 years, securing major deals including those with Coca-Cola and McDonalds. In 2007, she was selected as a Global Young Leader by the World Economic Forum. In 2009, she won the Rutgers Visions of Excellence award and The Most Influential Woman in Government and Business award from Rutgers University. In 2011, she was named one of the 20 youngest power women in Africa by Forbes. In 2013, she won the Distinguished Achievement award by the Douglass Society.