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Hiya, and thanks to your query.
You might be fairly appropriate in acknowledging that investing the funds into an acceptable funding car is a major choice.
I urge you to rigorously contemplate whether or not shopping for a much bigger home is important. There may be typically a temptation to extend one’s way of life when coming into a major sum of cash. Placing a big portion of that cash into an illiquid asset that won’t generate an earnings is probably not probably the most acceptable technique. As an alternative, contemplate investing the proceeds into an funding car geared in the direction of capital progress and the availability of a passive earnings stream (if vital).
Entering into the specifics of your query, you state that you just intend to retire at age 55 – roughly 13 years from now. Your present pension stands at R1.7 million. I assume that you just (or your employer) will proceed to make month-to-month contributions towards this pension fund till the day you retire. This contribution is essential and may bolster your pension over the subsequent 13 years.
Upon retirement, most individuals decide to flip their pensions right into a residing annuity the place a month-to-month earnings of two.5% – 17.5% will be drawn. Most advisors would recommend protecting these drawings to a most of seven% to protect capital for so long as attainable. That will equate to about R10 000 per thirty days in your pension because it stands presently.
You may have the subsequent 13 years to develop your present pension (by contributions). You must also deploy the R1 million acquired from the RAF into an appropriate growth-oriented technique for at the least the subsequent 13 years. Given the comparatively lengthy interval of 13 years till your deliberate retirement, I recommend investing the vast majority of the proceeds into an equity-oriented offshore resolution.
You might be allowed to take a position R1 million offshore, per calendar yr, as a part of your Single Discretionary Allowance. Investing offshore acts as a hedge towards the risky rand, and an equity-oriented resolution tends to outperform a cash market fund in the long term. For instance, cash market charges are presently sitting at round 4%. Due to this fact, R1 million invested at 4% for 13 years would develop to roughly R1 680 574 on the finish of the interval. Investing R1 million at, for instance, 9% (an honest return for an equity-oriented resolution) for 13 years would develop to roughly R3 207 957 – nearly double the return achieved by the cash market account!
Investing in equities does, nonetheless, include an elevated threat of volatility. It could assist to think about your threat tolerance and the way snug you might be with the next diploma of threat. Because of this, a extra conservative technique corresponding to investing R150 000 in a liquid, conservatively managed unit belief (for emergency spending wants) and deploying the remaining R850 000 into an aggressive, offshore technique, might show to be a worthwhile consideration.
As all the time, I like to recommend that you just seek the advice of an advisor who can help you with these choices, and offer you extra info associated to the liquidity of the funding, your threat profile, and tax issues.
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