The Fat Wallet Show from Just One Lap

FIRE for single-income households (#201)

May 24, 2020

Financial planning isn’t just for people who earn money. In single-income households, it’s the responsibility of everyone in the household to work towards financial goals. It’s also everyone’s responsibility to protect those not earning an income.

Naturally, dread disease and disability cover and life insurance are critical in these situations. A question from Denzil had us considering the benefits of taking out a retirement annuity in the name of the non-working partner. It means the growth of the investment is tax-free, even though there’s no short-term tax benefit. It also means drawdown in retirement will be taxed at a lower rate, as Denzil predicted. As an added benefit, a retirement product protects the assets from creditors and contributes to the financial security of the non-working partner in retirement. As our friends at OUTvest pointed out, it’s an employment benefit to partners not earning an income. 

Financial independence is certainly within the reach of those in single-income partnerships. It might require more time and careful planning, but it can be done.



Denzil

My wife is a Home Executive and therefore has no income. Are we able to open an RA for her that I can contribute to even though she has no income? 

Would it be better for me to contribute the MAX to my RA and get the tax benefit now? Is there any way come retirement age we are able to split my RA funds, be it a Guaranteed Annuity, or Living Annuity etc between my wife and myself to limit the tax implications?

Would we be able to pay no tax to SARS on RA withdrawals up to the threshold (based on new 2021 Tables) of R128,650 for the wife once over 65 or R83,100 between 55 and 65? 

This would drastically lower the Tax Implications, especially if we add in the R23,800 for interest income. This equates to over R12k per month after 65 and almost R9k per month between 55 & 65 that would be Tax free...This will drastically lower the Tax Implication and therefore amount required to reach financial independence. 

We are nowhere near Retirement / FI yet, but i'm just thinking about this now and what Tax implications there will be later on when we do eventually hit the age for retirement or the amount to be FI.


Win of the week: Reno

I just wanted to share with you how you saved me R162 000.

A few months ago I was looking to trade in my old car as it had some mechanical issues. After looking at some cars online I felt that I “deserved” a nice car with a touchscreen and reverse camera with all the nice features, as I had driven a not so lekker car for a while. 

I finally settled on a car that I would have financed over 72 months at a cost of R4500 p/m.  Then I was scrolling on YouTube and stumbled upon an interview you did with Tim Modise some years ago. In the interview you were speaking about your money journey and how you got into and out of debt.  That video shook something inside of me.  

I decided I do not want to pay a car off over 6 years. When I went to the car dealer I saw the nice car I initially wanted, walked past it and asked if I could have a cheaper car which I financed over 36 months at a cost of R4500 p/m.  

After the first few months of driving this car I am very satisfied with it and glad that I did not finance the other car over 6 years. So I have saved R4500 p/m over three years equating to R162 000.  

Even though I have financed this cheaper car over 36 months I am paying extra onto it every month to pay it off even sooner. All this came from an interview you did years ago in which you shared your money journey. Thank you for speaking about a topic which no one in my family speaks about. You have changed my perspective on money and debt.


Leonora

Babies, due to high growth hormones, easily double their weight and increase the number of teeth in no time. Everyone is delighted, but growth slows down eventually.

If a mature person (company) doubles in weight, it could potentially be very bad for its health. Better to only pick up weight by working out, flexing those same muscles to make it stronger and more efficient.


Radhini

I was hoping that you would be able to share some information on the transfers of TFSA accounts.

I am trying to transfer my account from FNB to Easy Equities. From my understanding, I can transfer my account with the shares between service providers, or is my understanding incorrect? According to FNB, I first have to sell the shares in my account before I can transfer my account, is this correct?


Rudolph

I am currently 27 years old

I am looking for an ETF that will be suitable for us, maybe high equity and more aggressive since we are young and are looking to invest for the Long term. 

Is there any ETF that you guys like that matches my profile? 


JJ

I’ve been investing in my TFSA for the last 2 years. I've been buying ETFs in big chunks, mostly the MSCI World ETF. 

I wanted to add another R10k onto my current 30k and thought if I buy again now I'll be moving up my average price quite significantly.

When do you stop adding on? 

If I'm planning on investing in the same ETF for 25 years, does it make sense to keep adding monthly (or however) for 25 years? Surely at some point you have to stop and think that adding monthly will always carry on increasing my average buy price and is slowing down growth. At what point do I just stop and let it grow? 

If it was normal trading I would be piling on shares when I think it's right and offloading accordingly, but for a long term investment that doesn’t make sense to me.


Santosh

Thanks to Coronavirus, global markets tanked on a daily basis and are still sinking - which is similar to the global sell-off in Q418 and just shy of 2008 GFC.

This was not only in South Africa - but internationally (Local stocks, local stocks that track the USD and hard currency stocks). I'm in all !

On paper, I'm about $40,000 or R600,000 poorer ! Even currency diversification didn't help.

The takeout for me, in a financial crisis, I'd rather weather the storm "at home".


Wim 

I have received dividends into the tax-free account since it does not get re-invested automatically. My question is if I now re-invest the odd R800 in the holding account, my contribution will be an additional R800. I will not be taxed because I exceeded the R2750 a month contribution.


Nic

The way I understand total return ETFs, the dividends are reinvested back into the ETF, saving on brokerage but the dividend withholding tax still gets deducted.

For a tax free account how does this work - there are not two versions of the total ETF, one for tax free and one for non tax free accounts?

In my mind it's not worth having total return ETFs in a tax free account - am I missing something.


Gregg

I currently put my full monthly TFSA allocation of 3000 into my bond. At the end of the tax year I draw out my full allocation of what was R33000 and is now R36000 and pay this lump sum into my TFSA. This way I save mega interest on my bond and the term also reduces.

But, my bond is at  9.25% interest (which means by putting extra money in, I am saving 9,25%), whereas I can get 10% interest from TYME bank. So it kinda seems that I save more in TYME, but psychologically I like seeing my bond interest and term come down.

Will I really be saving more by putting my R3,000 into TYME bank each month at 10% or is it still more beneficial to put it into my bond because of the  compounding effect of the interest coming down?

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