Retirement Fund Contributions vs Investing

[e=mc2+1]

Hi,

 

I would like to get your opinions on contributions to Retirement Funds.

 

As far as I understand it, contributions are capped at 27.5% of your taxable income.

And Retirements Funds include Pension, Provident and and RA Funds.

 

My question is do you guys max out your contributions to these each year? (Assuming you've maxed out your tax free saving account contributions already.)

And if so, why or why not?

 

For example, my pension fund looks like it's been averaging returns of around 10% pa over the last 7 years.

Assuming 41% tax, my take home salary reduces by R10,030 but contribution of R17,000 is added to my pension fund. (17,000 - 41%)

 

So you have the benefit of extra capital experiencing compound interest over time as well as tax benefits at the end when you take your pension.

 

Negative would be that you are forced to use 2/3 of your pension to purchase an annuity.

 

VS

 

Rather investing R10,000 a month into an ETF/shares and paying capital gains at the end of it but having full control of your funds at all times.

 

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I guess in short, yes, maybe you can get a bit more than 10% investing yourself but with all the incentives retirement funds offer doesn't it results in an effective interest rate much better than an ETF/share would give you. (Assuming average returns on these.)

 

Is it just a matter of control or am i missing something?

 

Thanks!

[Bandit]

The taxbenefit more than makes up for any extra growth an ETF etc. will give you. If you have a pension fund or similar it is deducted from your PAYE every month (instant tax benefit) and your take home pay isn't affected that much (not to mention companies contribute to it on your behalf).

 

I don't max it out but it's more than 15%. There's also a max amount you can contribute every year (R300,000 something).

 

TFSA is "easy" to fill up especially at 41% tax bracket.

[YoungInvestor]

Im taking out an RA early next year so that I cant start taking advantage of the tax break.

[Bandit]

Which RA are you looking at?

[YoungInvestor]

Waiting on my financial planner to send through some options, to narrow my search down. Will advise once I know.

[Bandit]

Look at 10x.

 

I don't use them since I already had one by the time I heard of them. Before you sign any papers check the penalty fees if you want to move your RA to another provider. Anything more than R0.00 is bullshiaat and you should tell your FA exactly that.

 

Sygnia also has one and you do the need an FA for them.

[YoungInvestor]

Awesome, yea familiar with 10x so I will look into them, my first check is the fees and then penalty fees so thanks for the heads up @bandit

[Bandit]

10x uses a Vanguard fund for offshore exposure so that's another plus imo.

[YoungInvestor]

Awesome. Didnt know that