THE ACADEMY OF FINANCIAL MARKETS WELCOME TO THE PRESENTATION! - - PDF document

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THE ACADEMY OF FINANCIAL MARKETS

WELCOME TO THE PRESENTATION!

THOUGHT FOR THE SESSION

Trust in the Lord with all your heart and lean not on your own understanding…

Prov 3 : 5

Module: Insurance and retirement fundamentals

Planning for retirement and financial

risk:

– Why plan? – How to plan: Risk vs. lifestyle approach – Maslow’s hierarchy of human needs – Important vs. urgent – Steps in the plan

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Module: Insurance and retirement fundamentals

Personal financial planning:

– Basic steps:

Set objectives (needs & risk analyses) Analyse current situation Prepare budget and allocations of monies

(including products, ensure all needs levels covered)

– Overall consideration: RISK ROFILE

Module: Insurance and retirement fundamentals

Planning for retirement and financial

risk:

– The personal financial position: Assets (excluding lifestyle assets) – liabilities – Financial plan should cover all areas (See Excel)

E.g. risk insurance

Module: Insurance and retirement fundamentals

The legislation landscape Pre-retirement planning:

– Simple calculation of amount needed to retire

Example 1 and 2

– Calculations taking inflation and growth into account – See Excel examples

Example 3

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Module: Insurance and retirement fundamentals

Pre-retirement planning:

– Calculations taking inflation and growth into account

Assumptions and their effect Example 4, 5

– The budget challenge

Module: Insurance and retirement fundamentals

Risk & risk profiles:

– Classification – Investment composition – Risk inventory: Current situation regarding

Age Income Health Financial status Other

Module: Insurance and retirement fundamentals

Risk insurance and products

– Risk & insurance matrix p 12 – Short-term insurance – Life assurance:

What, how much, etc.? Types and liquidity

– Medical aid & Health insurance – Insurer selection

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Module: Insurance and retirement fundamentals

Retirement products

– Pension and provident funds

Basic working Defined benefit vs. defined contribution funds Taxation Difference between the two

Module: Insurance and retirement fundamentals

Retirement products

– Preservation funds:

Functioning and use Taxation

– Retirement Annuities

Functioning and use Features and taxation

– Other investments available

Module: Insurance and retirement fundamentals

Other investments available

– Unit Trusts, direct shares, offshore, structured products, etc. – Advantages and disadvantages – Volatility and risk – Diversification and derivatives – Managing market risk – The power of compounding interest

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Module: Insurance and retirement fundamentals

Retirement fund tax (pre 2016):

– Pension fund contributions:

Highest of R 1750; or 7,5% of Retirement-funding income

– RA contributions:

15% of non-retirement funding income; or R 3 500 – pension fund allowances; or R 1 750

– Provident fund:

No deductions, but can take full amount at

retirement. – From 2016 – 27.5%

Module: Insurance and retirement fundamentals

– Example:

• Mr. Worth is employed at Nedbank and on

weekends he puts in kitchen cupboards. He has the following income for the year:

Salary

R 400 000

Profit from own business R 320 000

He contributes R 2 200 per month to a pension fund, R 5 000 per month to an RA and R 1000 per month to a provident fund. How much will his deductions for tax purposes be?

Module: Insurance and retirement fundamentals

Post-Retirement products

– Retirement funds available and use:

1/3rd Lump sum – Taxation see below 2/3rd in compulsory purchased annuity:

– Traditional annuity – Living annuity

New provisions:

– Withdrawal of full amount if amount is less than R75000 – New lump sum tax free portions: Lump sum: Tax rate: 0 - R315 000 0% 315k – 630k 18% 630k – 945k R 56 000 + 27% of amount above R 630 000 above 945k R 141 750 + 36%

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Module: Insurance and retirement fundamentals

Post-Retirement products

– Life annuities and their types

Example 6 Example 7 Advantages and disadvantages Example 8

– Living annuities

Characteristics, advantages and disadvanatges

– Voluntary purchased annuities

Exercise:

– John is a young CA (age 26) who earns a monthly salary after tax and deduction for medical aid and pension of R 16 000. He also gets an annual performance bonus. – His health is good and he has no dependants although he wants to marry one day and have 3 children. – He owns a car which is fully paid for and rents a garden cottage at R 2 300 per month. His short-term insurance is R 700/m and is adequate. – He belongs to a medical aid (R 600/m) and a pension fund (R 1 500/m) and payments are deducted from his salary by his employer. – Other monthly costs amount to R 7 000 – He has no debt, no other investments, no life insurance

• r other retirement products and no holiday savings.

– You must: Calculate and evaluate his monthly budget and suggest some products to address possible shortfalls. He wants to invest at least R 2 000 per month (surplus)

Exercise: – Ebie is 45 years old and has his own business: a 2nd hand car

• dealership. He has a B Comm. degree.

– The profit of the business after tax is between R 150 000 and –R20 000 per month and about R 850 000 per year. He draws no fixed salary. – He owns 2 cars and 4 properties which is paid off. The market value

• f the properties is 4m and he earns R 180 000 rental per year on
• them. His short-term insurance is adequate.

– He is married with 3 children ages: 3, 5 and 7. – His medical aid costs him R 2 100 per month and he has RA’s costing R 2 200 per month. He has life cover of R 750 000 costing R 800 per

• month. Included in this is disability cover of R 12 000 per month.

– Other monthly costs amounts to R 20 000 per month. – He has no debt, no other investments, no other retirement products and no holiday savings. – You must: Calculate and evaluate his annual budget and suggest some products to address possible shortfalls. He wants to invest in shares as well