2019 Quarter 3 Newsletter

designbythink 2019, Quarter 3 Newsletter 2019

Quarter 3 – 2019

Dear Members

The choices that you make today, will affect your retirement in the future. For example, if you change employers, the option of cashing out your retirement savings is very tempting. In this newsletter are examples of why you must never cash out your retirement savings. There are tax advantages too. We also outline the four options for preserving your retirement savings, along with the benefits of compound interest, your most powerful tool in wealth creation. Make the right choice. Learn why in this newsletter.

Don’t Cash Out Your Savings

designbythink 2019, Quarter 3 Newsletter 2019


In the long run, it’s not just how much money you make that will determine your RETIREMENT. It’s how much of that money you put to work by saving and investing it.

If leaving your employer

One of the important financial decisions you will need to make is what to do with your retirement savings if you leave your current employer.

Changing jobs brings temptation that could impact the rest of your life. The option of withdrawing your retirement savings in cash is very tempting, especially if you start thinking about everything that you could do with that money. Short-term satisfaction seems to get the better of you, rather than weighing up the long-term benefits of preserving and growing your retirement savings.

One of the issues you will face along the way is cashing out your accumulated retirement savings when resigning. The consequences of this can be disastrous.

While saving for retirement throughout your career is important, preserving your funds when changing employers must be at the top of your list of priorities.

Preserve your funds!

Not cashing out your benefits will help to ensure that you are in a better position to retire comfortably one day.

If you do not preserve your funds:

  • you will no longer have savings
  • you will lose all the interest that your savings would have generated.

Preserving your benefits will also earn you compound interest, where your interest earns interest.

The interest on your investment returns compounds over time, turning even modest savings into sizeable amounts after only a few decades. Compound interest means you are earning interest on interest. This is basically growth on growth. We are also living longer, so we will need even more money to retire comfortably.

NEVER CASH OUT – your future self will thank you!

Your Choices Will Affect Your Retirement

designbythink 2019, Quarter 3 Newsletter 2019


The below example shows the impact of the CHOICES that Lisa MADE throughout her career.

Like all of us, Lisa’s life is a journey and is full of ups and downs. When changing employers, the option of taking everything in cash is very tempting, as human nature kicks in and we start thinking about what we can do with the money. It is easy to focus on short-term satisfaction rather than weighing up the long-term benefits.

Lisa was faced with the following important choices:

  • Whether to withdraw or preserve her retirement savings whenever she changed jobs.
  • Whether to increase her monthly contribution rate regularly, or not.

Her choices make a big difference to how much her monthly pension will be when she retires.

OUTCOME 1      R15 367 monthly

If Lisa preserves her funds when she changes jobs (except for the one time when she makes a partial withdrawal to study) and increases her retirement contributions regularly, she’ll get a monthly pension of R15 367 in today’s money when she retires.

OUTCOME 2      R11 902 monthly

If Lisa preserves her funds whenever she changes jobs (except for the one time when she makes a partial withdrawal to study) but doesn’t increase her contributions, she’ll get a monthly pension of R11 902 in today’s money when she retires.

OUTCOME 3      R4 609 monthly

If Lisa never preserves (except at her last job change when she’s older, approaching retirement and realising the importance of preserving) but increases her contributions regularly, she’ll retire with a pension of R4 609 in today’s money.

OUTCOME 4      R2 804 monthly

If Lisa never preserves until her last job change, at age 55, and doesn’t increase her contributions, she’ll retire with a pension of R2 804 in today’s money.


This is how you will be taxed If you preserve your retirement savings, rather than withdraw THEM before retirement

When you retire, you can take a total of R500 000 of your retirement savings tax free.

However, all amounts you withdraw in cash (exceeding R25 000) before retirement will reduce this tax-free amount. The amount you can take in cash tax free all depends on your previous cash withdrawals from your retirement funds. How much you are taxed depends on how much you take and when you take it – see the tables below.

Options for Preserving Your Retirement Savings

designbythink 2019, Quarter 3 Newsletter 2019

What are your options
for preserving your retirement savings

And reducing the risk that you won’t save enough for retirement?

Transfer your money to your new employer’s fund.

  • You won’t pay tax on the transfer, unless you transfer from a pension fund to a provident fund. In that case, the full amount will be taxed.
  • You can take a portion of your fund credit in cash (which is taxable) and transfer the balance tax free.
Leave your money in the current fund

  • You will benefit from lower fees.
  • You can withdraw your full fund credit before you retire. If you withdraw only part of your fund credit, the balance must be transferred to another fund.
  • You can’t make additional contributions.

Transfer your money to a preservation fund.

  • You don’t pay tax on the money you transfer, unless you transfer from a pension fund to a provident preservation fund.
  • You can make a once-off withdrawal from the preservation fund. This single withdrawal allows you to take all or part of your money in the preservation fund.
  • You can transfer from a preservation fund to a future employer’s fund.
  • You can’t make any additional contributions.
  • The AFRIS preservation fund is available to you. You may benefit from the lower fees.

Transfer your money to a retirement annuity fund.

  • Your fund credit is preserved for your retirement.
  • You don’t pay tax on transfer.
  • You can make additional contributions.
  • You can’t withdraw any money until you retire, unless you emigrate.
  • You can take up to one-third of your benefit as cash when you retire.

Compound Interest

designbythink 2019, Quarter 3 Newsletter 2019

Compound interest

Your most powerful tool in wealth creation

To put it simply – compound interest is when interest earns interest.

Compound interest is the result of reinvesting interest, rather than paying it out, so that interest on the next period is then earned on the principal sum PLUS the previously accumulated interest.

The table on the right illustrates the powerful effect compounding can have on the investment returns of a portfolio.

The result over time has a snowball effect, where the portfolio starts growing quicker and quicker the longer it is invested.


The benefits of compound interest require patience and time. This scares many people who live in a world where everything is instant and they are looking to make a quick buck. Nonetheless, the returns that compounding creates over time are well worth the wait.

The financial world often refers to compound interest as ‘magic’ because it is one of the most fundamental ways to build wealth, yet takes the least amount of effort.

The example on the right shows the gains of two portfolios called the ‘Spender’ and the ‘Compounder’. The Spender spends all the interest that is earned and the Compounder reinvests all the interest that is earned. The differences in the gains of the two portfolios becomes even larger as time goes by.

Over a 20-year period, the Compounder’s portfolio gain is more than FIVE times the gain of the Spender’s portfolio.


If you spend all your interest


If you reinvest all your interest

This example is based on 10% annual interest.


The value of GOOD advice

The value of getting financial advice from a qualified financial adviser should not be underestimated and is highly recommended. It may help you reach your goals.

Speak to a financial adviser to help you consider your options.

Contact Alexander Forbes Individual Advice Centre (IAC):

Tel: 0860 100 444 or Email: iac@aforbes.com

2019 Quarter 2 Newsletter

designbythink 2019, Quarter 2 Newsletter 2019

Quarter 2 – 2019

Dear Members

Your retirement is important, and this newsletter will give you some useful tips on planning for your future. Formulating a plan is essential, and it is not as difficult as you think. All you need to do is sit down and follow a simple step-by-step process that, in the long run, will look after the financial future of both you and your family. Here we also outline some retirement rescue remedies such as eliminating debt, minimising expenses and drawing up a budget. See how easy it is, all in this newsletter.

Plan For Your Future

designbythink 2019, Quarter 2 Newsletter 2019

Plan For Your Future

Your retirement is important. This newsletter outlines some financial rescue remedies and helps you formulate a financial plan.

Planning is a detailed map for accomplishing a defined purpose. Without a map, how will you know where you’re going?

All too often retirement is seen as a long way off and not necessarily something we give much thought to. We are too busy living to even plan for the future.

Some of us may be making additional savings and others hope that our pensions will be enough.

Unless you have actually sat down and thought about what you will do when you retire, where you will live and whether you will have enough money, you have not yet planned. Not many people have a plan, and without a plan, you have nothing.

Of a hundred 50-year-olds now, when they are age 63:
38 will be forced to continue working
36 will be dependent on the government
17 will need family support
5 will be financially independent
4 will be comfortably well-off

Only 9 have PLANNED for their retirement.

The big question – will you have saved enough?

Most people do not save for their retirement for the full 43 years for a number of reasons:
  • They cannot find a job.
  • They skip from job to job and have long gaps between various jobs.
  • They leave work to have a baby or babies.
  • They take time off to travel.
  • They withdraw their pension savings to pay for debts, holidays, or to live on while looking for another job.

We can come up with a multitude of reasons for not saving for the full 43 years, but the main reason is CHOICE. We make choices and have to live by the consequences of those choices.

From the age of 20 you have the potential of working for 43 years until age 63. If you stay in employment and contribute to a pension fund for the 43 years, you will not need to read this newsletter!


Assuming you retire after 43 years, the Fund tries to ensure that your pension is 70% of your final salary:
  • Final salary R10 000 per month
  • First pension R7 000 per month

To earn a pension equal to your final salary at retirement, you will need to invest in a pension fund for 43 years without a break. You need to save 15 times your final annual salary for this retirement plan to work. Then you can expect your pension and your final salary to be about the same.

Being financially independent does not happen on its own – you have to make it happen. It is an active process and requires hard work, sacrifices and, most of all, knowing where you’re going.

Eliminate Debt

designbythink 2019, Quarter 2 Newsletter 2019

Retirement Rescue Remedy Rule #1

Eliminate debt – the best thing you can do for your retirement

The life you live today is due to the choices you made yesterday. It therefore stands to reason that your quality of life in the future depends on the choices that you make today.

Because of poor choices, most people are not living the life they desire, particularly when it comes to their personal finance. They say that they don’t have the opportunity to become financially independent. But this is not really true. Recent statistics show that the average South African saves 0.1% of their income and spends a whopping 65% of their income on servicing debt.
South Africans are funding their lifestyles with debt – which is a poor choice.

Compound interest working against you

To understand the true cost of debt, you have to understand the concept of compound interest. Compound interest is the interest being added to the interest on your debt.

The longer you take to pay off debt, the more interest you pay. The interest you pay on your debt is much higher than the interest you earn on any investments or savings.

So it makes sense that, to prepare for your retirement, it is important to get out of debt as soon as possible and start saving. You must be debt-free by the time you retire.

Rapid Debt reduction

There are a number of ways to reduce debt:

1. Increase your cash flow

To increase your cash flow, you need to begin by taking stock of where your money is going. Jot down all your expenses, from your bond to the magazines you buy, the cups of coffee you bought and your debit orders. Once this is done, decide where you can cut your costs. Record every rand you spend in a month, so you can see just where your money is going.

2. Inject cash

Take stock of all your possessions. If you can do without something, sell it and inject the money into your rapid debt reduction plan. Use your bonus to settle your debts.

3. One giant account

Draw up a list of your debts, from the smallest to the largest – from the overdue clothing account to the car loan and the bond. Now add them all up and look at the total as one giant account, and not as individual accounts.

4. One giant installment

Add up all your monthly installments of each and every one of your debts. See this grand total of all your installments as one giant installment that you need to make every month on one giant account.

Now here’s the magic…

1 Using the money you have saved by cutting back on expenses, pay off the smallest debt first. Easy!
2 Now use this money towards your installments on your next smallest debt.
3 As one debt is paid off, you need to use the extra money towards paying off the next, and the next, and the next until you have no further debt.

During this process you must pay your other monthly accounts on time or you will have to pay interest.

It goes without saying, that while doing this, you may not acquire new debt!

Your house mortgage –
the biggest debt, the biggest saving

Interest on your home loan is calculated daily on your balance, so extra money parked in your mortgage account saves you paying interest.

The best way to save on your mortgage is to put every spare rand into your mortgage account. To do this you need to cut your daily expenses and put the spare money into your mortgage. You can also use your bonus or any extra money that comes your way.

Reduce all your other debt, avoid using credit cards, retail accounts and loans, and so on. Try to stay debt free.