Need to know
- Sino Booi, Product Development Lead at Momentum Savings, explores whether to lump or split retirement savings into different products.
- Having multiple retirement fund investments don’t guarantee better growth; tax, costs, investment choices and flexibility matter.
- The right structure depends on your goals and circumstances.
Realising that you don't want to run out of money in retirement is an important first step towards securing your financial future. When you retire, you effectively become responsible for writing your own salary cheque, which makes saving enough, and choosing the right way to save, especially important.
So, should you keep all your retirement savings together, or can you have more than one retirement annuity or investment?
The answer depends on your circumstances, financial goals and where you are in your retirement journey.
What should you consider when looking to start more than one retirement savings plan?
There are several factors to consider before deciding whether to lump your savings together or split them across different retirement investments.
Here are the five main factors:
- Tax back in your pocket
- Growth
- Costs
- Flexibility
- Variety of investments (diversification)
The best answer for an individual may come from personal financial advice. A financial adviser can help calculate how much you may need, by when, and which structure may suit your goals best.
Will having more than one retirement savings plan give you better investment growth?
Your money will not automatically grow faster or slower simply because it is held in one retirement annuity or split across two products, especially if it is invested in the same underlying funds and all other factors are equal.
You can also diversify your investments within a single retirement annuity by choosing investment funds with different asset mixes. That way, if one asset class is performing well and another is lagging, the overall investment can be more balanced.
What costs should you consider when having multiple retirement funds?
When you have multiple retirement investments, consider how the investment growth compares with the costs you pay. The cheapest product is not always the best option, so it is also important to compare the features and benefits offered by each product.
There may be cost advantages to combining or splitting your retirement savings. For example:
- Savings levels: Some providers may offer rewards when your savings reach a certain level.
- Multiple products: Some providers may reduce your overall costs when you have more than one product with them.
- Long-term investing: Some products may become cheaper the longer you remain invested.
These benefits can be attractive, but they should be compared carefully.
A financial adviser can help with this calculation. Over the long term, lower costs can improve your growth outcome.
Can having more than one retirement annuity give you more flexibility?
Flexibility can be another reason to consider splitting your retirement savings. At retirement, you can usually take up to one-third of your retirement savings as a lump sum, while the rest is used to buy an annuity that pays you a regular income.
Some people may prefer to leave part of their savings invested for longer, and in that case, having more than one product may make sense. Others may like assigning different goals to different products, such as one retirement annuity for day-to-day expenses, another for medical expenses, and another for travel.
The structure that works best depends on your retirement needs and the features of the products you choose.
Why a retirement savings plan is your first step to investing for retirement
Whether you are saving through your employer or in a retirement annuity, the most important thing is that you are saving. Compound growth over the long term can be a lifelong friend. The tax benefit you receive for retirement savings also makes these products attractive, and this applies regardless of where you invest or how many products you use.
That is why it can make sense to save as much as you can through your employer’s retirement fund, or to consider taking out a retirement annuity. There are limits to the amount that qualifies for an immediate tax deduction, but these usually only become relevant at higher contribution levels. If you contribute more than the annual deductible amount, the unused deduction is not lost. It can roll over and may benefit you in future, including when you reach retirement.
So, should you lump or split your retirement savings? The starting point is simple: Save as much as you will need. From there, the right structure depends on your tax position, costs, investment choices, flexibility needs, and the advice you receive.
This blog post was adapted from an article recently seen on Insurance Biz.
Get advice
From just R500 a month, start saving for retirement, future medical costs in retirement and other long-term goals with the Investo Retirement Annuity. Enjoy a loyalty bonus when you stay invested, plus the option to contribute from only R150 a month in a second retirement annuity from Momentum Savings. Speak to a financial adviser to help structure your savings and determine how much you need to save to reach your long-term goals.
About the author
Sino Booi
Product Development Lead at Momentum Savings
Sino Booi is the Product Development Lead at Momentum Savings. He has worked in the insurance industry for 10 years, mostly in developing long-term savings and funeral products. He has a BSc Mathematical Statistics and Actuarial Science degree from Wits University. Outside of work, he’s a married man, an exciting milestone for him, and he loves participating in sports, especially golf, soccer and padel. He also loves travelling.
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