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Plan your current investments today to ensure your desired lifestyle tomorrow

10 February 2015 Dave Elliott, Marriott Asset Management
Dave Elliott of Marriott Asset Management.

Dave Elliott of Marriott Asset Management.

According to Dave Elliott of Marriott Asset Management, maintaining your lifestyle in later years should be the core objective of your investment plan. However, to achieve this objective, you are often required to adjust your lifestyle today so that you are not forced to do so in the future.

Generally, most employees contribute to compulsory pension or provident funds through their employers. According to Elliott, it is critical to know what income will be generated from your accumulated savings in these funds when you are no longer working. “This income must be converted into a present day equivalent, as the purchasing power of income is affected by inflation over time. By considering the future level of income in today’s terms, you can gauge whether it is sufficient to sustain your desired lifestyle,” he said. “Should this not be the case, you will need to make additional voluntary contributions into either a retirement annuity or discretionary product such as a unit trust.”

Elliott says that one of the most tax efficient means of saving outside of an employer pension fund is through a retirement annuity. Not only is the income earned exempt from all forms of tax, but the contributions made are tax deductible, subject to certain limits. “While the income earned from these savings is fully taxable when being drawn in latter years, the benefits of tax-free capital accumulation from the re-investment of income, coupled with a likely lower marginal tax rate on retirement, makes this a highly tax efficient savings vehicle when compared to unit trusts,” he said.

Contributions to a retirement annuity are flexible, and it is therefore possible to contribute monthly or even through an annual lump sum before the tax year end in February. Consequently, it is well suited to self-employed individuals or commission earners who do not belong to a company pension or provident fund or have a variable monthly income.

“It is vital to understand that when you are investing in retirement annuities and pension funds, you are investing for income,” said Elliott. “The income you earn from these investments will fund your lifestyle in the future. This income, therefore, should be reliable and predictable, which will help you to plan with more certainty.”

But how does an investor ensure his investments produce this dependable income? According to Elliott, there are local and international companies that will continue to produce both reliable and growing income regardless of global slowdowns, exchange rate volatility and varying interest rates. “By including these companies in your retirement annuity, you can arithmetically determine how much income you will earn from those investments in the future. Informed decisions can then be made as to whether you are saving enough,” he said.

Elliott also stresses that chasing the best performing unit trust and superior returns do not necessarily help you to achieve your objectives as the income earned tends to be more volatile and less reliable. “This could not only leave you with an income gap in the future, but also cause much financial anxiety along the way,” he said.

To assist investors in this planning process, Marriott have developed a unique online investment planning tool. When transferring an investment into, or making a new investment in the Marriott Retirement Annuity, this tool will be able to demonstrate not only the income currently generated by that investment, but will also reflect a reasonable expectation of the monthly income generated and the capital value at the investor’s chosen future retirement date.

“This is based on the principle that Marriott only invests in reliable income streams,” said Elliott. “By knowing this information and being able to rely on it with more certainty, you will be able to adjust your lifestyle today so that your future lifestyle is not left to the vagaries of the stock markets or the hope of phenomenal future returns.”

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