IC Newsletter Issue 3 2022

In this issue

Hello everyone! Welcome to our final CONNECT newsletter for 2022! I’m Rita Cool, Head: Individual Consulting Strategy, Best Practice at Alexforbes.

It feels like every year time goes faster and here we are at the end of another year. In 2021 we were hoping to see the end of Covid and a return to normality … luckily we have seen the end of masks and restrictions. This is unfortunately not the case all over the world and we have been made acutely aware this year how global events affect us at the tip of Africa. From international political upheavals, rapid changes in leadership, high interest rates and inflation, we are certainly living in challenging times.

This has not been the first time, and it won’t be the last, that things seem uncertain. Yet human beings are resilient in the face of adversity and challenging times often lead to innovation and exciting new solutions. With some thought and planning –we have what it takes to make the year ahead a positive one!

In this edition we look at how important it is to set goals and how to achieve them. By measuring your progress against goals instead of fluctuating returns, you can reduce anxiety and filter the bad news.

We provide a short summary of markets and Thato & Trevor discuss some of the options available when saving towards your retirement. The end of the tax year is around the corner and now is a good time to make sure you can still use the available tax benefits before 28 February 2023. We also address the costs in an estate when you or a loved one dies.

Alexforbes has been busy this year with several new initiatives including the launch of our new brand. We are also proud to sponsor the first crew from marginalised communities to enter the iconic Cape2Rio yacht race, starting in January 2023. The sailors have been trained by the Royal Cape Yacht Club Sailing Academy. This initiative demonstrates our commitment to create the connection between tomorrow’s reality and today’s aspirations. Remember to follow their journey on the website https://cape2rio.live/

Alexforbes is the headline sponsor of Classic Business on Fine Music Radio (FMR 101.3fm) hosted by one of South Africa’s premier financial journalists, Michael Avery. We invite you to listen to Classic Business for a range of topics spanning global and local business dynamics, economic commentary, investments and financial planning.

At Alexforbes Financial Planning Consultants we continue to use our insights to give you the best advice, to improve your financial outcomes. We hope that you have a restful festive season and travel safely if you’re going away on vacation. We look forward to connecting with you again in the New Year!

Until next time, happy reading.

Getting real with Rita Cool

The end of the year is in sight and it is time to reflect on what one has achieved this year.

Did you set any New Year’s resolutions for 2022 and if so, did you achieve any or all of your goals?

Have you already given up on your goals for the year and pushed them onto next year’s resolutions list, hoping that next year you will do better, become richer, healthier or thinner?

A lot is said about having goals and how important they are but how many of us have actually set goals? How many of your goals are due to what you think society wants from you, instead of what is important to you?

What is standing between you and your goals? The fear of failure or the fear of success?

Is something very small or irrelevant holding you back from achieving your goal but you are using it as an excuse?

If you find it stressful to think about setting goals, perhaps you should look at having fewer goals and focussing on what is important and achieving those.

Goals can be big or small and are not always monetary. They could be time freed up to spend on a hobby or your family, or improved health.

Other goals could be saving enough money to go on holiday or paying off your debt by a certain date.

So where do you start?

Goals can be broadly grouped into 3 groups with different time frames; short-term (1 – 2 years), medium-term (3 – 5 years) or long-term (more than 5 years). The period can affect the product that will suit the need and any investment portfolios you use.

They can be specific like a deposit for a house, or general, like emergency savings, that can be used for a number of different emergencies.

The likelihood of achieving a goal is better when it is a SMART goal:

S M A R T

pecific

easurable chievable elevant ime

Sensible, significant

Meaningful, motivating

Agreed, attainable

Reasonable, realistic

Available and needed

What exactly is the goal? Be specific

How will you know if you’ve achieved the goal?

Is it possible with the time & money you have?

Will this goal make a difference in your life?

When do you want to achieve the goal?

Start by writing down everything that you are thinking about, no matter how big or unachievable they seem. Then prioritise the 2 or 3 main goals based on urgency & importance.

A financial adviser can help you to calculate how much is necessary to achieve your goals, as either a lump sum or ongoing contributions, based on the timeframe you have.

If you know that you are easily distracted, set up a structure to help you achieve them, rather than setting you up to fail.

Set up automatic payments into a savings account or meet a friend at the gym to hold you accountable.

Add extra contributions to your employer retirement fund where money is deducted from your salary monthly before it becomes a temptation to spend in your bank account.

Tell people about the goals so that you are accountable to someone.

Although it is difficult to picture long-term goals like saving for retirement you will still need money for that, whatever technological or lifestyle advances happen.

Acknowledge that you can’t avoid long term planning and take it into account at the same time you consider your other shorter term, and perhaps more fun, plans. The sooner you start the easier it will be to achieve.

If you deviate from your goal, don’t give up and carry on where you left off. Don’t lose focus and keep your eyes on your goals.

The cost of passing away

The costs and payments that affect your Estate

Every year there is a call to action to draft wills, but do you know what all the costs are that reduce the amount of your estate and affects the amount that is left for your beneficiaries? Not all of the costs will be relevant to all estates, but take these listed below into account so that you can make sure that your loved ones do not struggle to pay the costs if something happens to you.

Funeral, cremation and/or other services: At least R15 000 to R30 000 (but can be much more expensive depending on requirements).

Executor’s fees: Estates under R250 000 can be processed by a spouse or child but anything bigger must have an Executor appointed. The Executor takes over your roll to transact on your assets like selling assets, transferring assets, closing accounts, settling debts and distributing the assets to your beneficiaries.

Executor’s fees are legislated as a maximum 3.5% + VAT. You can negotiate a lower fee with the executor, specifically on larger estates.

If you are married In Community of Property (ICOP,) the executor’s fee is calculated on the whole estate, not only the half deemed to belong to the deceased. Even though you might not need to pay estate duty, you still need to make provision for the Executor’s fee. On an estate of R2 million this alone will cost R80 500.

Estate duty: 20% on the first R30 million, and 25% thereafter. The first R3.5 million is exempt. If you are married you get the benefit of any unused exemption on the first estate rolling over to the second, up to a maximum of R7 million in total. Assets left to a spouse are excluded from Estate duty as it will form part of that person’s estate at death and benefit from the R7 million allowance.

Capital Gains Tax: Payable on the gains made on assets that have to be sold or transferred to beneficiaries. The first R300 000 is exempted at death. Only 40% of the rest of the gain is included for calculation purposes and then taxed on the deceased’s tax rate.

Income tax: Any income tax owed to SARS up to the date of death has to be paid.

Master’s Fees: For estates less than R400 000 the fee is R600. Thereafter on a sliding scale with a maximum of R7 000.

Fee on income earned by estate: The Executor can charge 6% of the income earned by the estate while the estate is being finalised. This includes rental income, interest, trading or farming income.

Advertising costs: Two advertisements are placed in a deceased estate. Costs depend on publications used but could be around R1 000.

Bank charges: To open an estate bank account: R600.

Postage & petties: Between R300 and R500.

Professional fees: To pay professionals to assist the Executor with specific requirements, for example an accountant, conveyancer or tax consultant.

Estate Agent’s commission: Can be negotiated but on average 7.5% of sale of property.

Estate asset maintenance costs: To maintain assets while estate is being wound up.

Valuation and appraisal costs: If required by the Master.

Transfer costs: Payable to a conveyancing attorney for property transfers from a deceased estate. Property transfers to beneficiaries are exempted from Transfer Duty.

Rates and Taxes: 5 months’ rates & taxes are payable to the municipality in advance.

Bond cancellation costs: Payable to an attorney where the bond account has to be closed and cancelled in the Deeds Office.

Claims against the estate i.e. hospital bills, bond, loan accounts, credit cards etc.

Donations Tax: 20% on donations over R100 000 per annum where the donor has not paid the donations tax at time of death. Donations to spouses are not subject to donations tax and some donations made in the event of death are excluded.

It is important that there is enough liquidity in your estate to pay for all the costs or else your plans for your estate and beneficiaries might not turn out as you think. Liquidity means that you should have assets like cash that are available or that can be made available relatively easily to pay for the fees and taxes. This could include money in your bank account or investments.

The easiest way to provide liquidity is through a life policy. It can also provide a lump sum that can be used to provide an income for your spouse and children.

The first step is to have a will. This can also help structure your assets and liabilities and reduce some of the costs of an Estate. For example, retirement funds do not form part of your estate, which saves Estate Duty and executor’s fees. Endowments allow you to nominate beneficiaries so there is no executor’s fee charged on that amount and it is available quickly after death.

You might want to set up a Trust to reduce costs at death to ensure your beneficiaries are looked after. Trusts come with their own rules and costs so discuss this with your advisor to see it this is the best for your situation.

Speak to your financial adviser to make sure that you have enough Liquidity in your Estate and ask how they can help you if you don’t.

Getting professional advice during periods of loss can help you to ensure that nobody takes advantage of your emotional state and that you don’t make rash financial decisions that could affect you in the long term.

Connect with us

Thato & Trevor discuss Saving for Retirement

Throughout life you’ll probably come across a few financial ideas that everyone is talking about and that you are not sure how it affects you. In this edition of Connect, Thato & Trevor unpack what saving for retirement is.

Trevor: Thato:

Hi Thato. I overheard Steve from accounting talk about how he was going to use his December bonus for an AVC. Do you know what that is?

Yes Trevor. AVCs are Additional Voluntary Contributions. It means that he is going to add extra money into our company retirement fund. Most employer funds allow for AVCs over and above the normal contributions we make every month.

Trevor:

Why would he do that?

Thato:

He wants to save more for his retirement and save tax on the bonus he is receiving.

You can contribute up to 27.5% of your total taxable income each year, and get the tax back on the contribution, up to R350 000 per year.

If his income tax rate is 30%, he is getting that 30% tax back on the extra contribution.

Trevor:

Now I understand. I have a Retirement Annuity where I add these extra contributions.

Thato:

You’ll get the same tax benefit if you add towards your RA, but you can potentially save some fees by rather contributing to your employer fund.

An RA is great if you are self-employed or if your employer does not have a retirement fund.

Trevor:

I’m not sure yet what I will do with my bonus. I still want to save for retirement, but I might need to access some of my funds again in the future.

Thato:

A Tax-free Savings Account (TFSA) will perhaps work better for you if you need access to funds. However, you’ll get the best benefits from it if you can save for a longer time so you benefit from more compound interest – compared to other products like a bank account or unit trusts.

Trevor:

Do I get a tax benefit on the TFSA the way you get tax back on an AVC or RA?

Thato:

No, you don’t get the tax on your contributions, but there is no tax on the growth in the fund on an ongoing basis.

You can contribute up to R36 000 each tax year, with a maximum of R500 000 over your lifetime, into a TFSA.

Trevor:

I think I should speak to a financial adviser to see what will be the best solution for my situation.

Thato:

That’s

Market updates

Global

Global inflationary pressures are broadening Load shedding weighs on business activity

Employment is still below pre-Covid-19 levels

Commodities retreated in October 2022 as the dollar eased

Read the complete commentary here.

Disclaimer:

Please note that while care has been taken to ensure that the information provided in this article is correct, it represents an overview of the topic under discussion and as such does not constitute advice.

While Alexforbes has taken reasonable effort to ensure that the information contained herein is true and correct it will not be held liable in respect of any loss arising from any advice provided arising out of the contents of this circular.

We suggest that you contact your Legal department before taking any decisions based on the information herein.

The following businesses are licensed financial services providers:

Alexander Forbes Financial Planning Consultants (Pty) Ltd (FSP 31753 and registration number 1995/012764/07)

Alexander Forbes Investments Limited (FSP711 and registration number 1997/000595/06)