Investments are critical to the lifestyles and well-being of most of us, but we often find ourselves lost and confused. One of the reasons for this is that the financial services industry has sown confusion with a vast array of investment products that are frequently sold indiscriminately.This investment is an investment in retirement funds.
This means that for every R1 you invest for your retirement, Sars will allow as a deduction an amount equal to your current marginal tax rate, which is between 18% and 45%. To explain this, I will use a simple practical example. If you earn R50 000 per month your average tax rate, after rebates, is 23.79%. When you retire at age 65 you get the first R500 000 tax-free. That is a guaranteed return on investment on the first R500 000 of 23.79%.
Even if your investment growth ends up being zero for the full term, which is unlikely, then the tax benefit alone makes it a “no brainer”. To get the most benefit, you must use the full tax-deductible contribution to your retirement funds. This will also assist in providing you with an income at retirement. This practice is often referred to as “paying yourself first”.
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