Your retirement dictionary

110 rule

This refers to an investing 'rule' some researchers advocate which states that the percentage of money that you have invested in equities should be equal to 110 minus your age. So if you are 40 years old, you should have 70% of your portfolio invested in equities.

Annuity

An annuity is a stream of income paid out at regular intervals. For example, a retirement annuity is a product that lets you save towards retirement and a living annuity is a product that provides an income in retirement.

ASISA (Association for Savings and Investment South Africa)

This organisation represents the interests of the country's asset managers, collective investment scheme management companies, linked investment service providers, multi managers and life insurance companies. They aim to ensure that the industry and its members stay relevant and sustainable by promoting a culture of savings and investment.

Asset

An asset is something of value that can be exchanged for cash. You can own all kinds of assets, from property, equipment and jewellery to investments that you've bought (like pension plans), shares in a company, or even money you've lent out.

Asset classes

An asset class is a group of similar investment vehicles. Examples of asset classes are equities (stocks), fixed income (bonds), cash and cash equivalents, real estate, commodities, derivatives and their global equivalents.

Beneficiary

The person to receive the benefit payout on a policy.

Benefits automatically transform

Benefits change at a certain point in time in line with client needs.

'Black tax'

This is an informal term often used in South Africa that refers to the extra financial support that black professionals are expected to give their extended families each month (see Sandwich generation).

Broker (or financial intermediary)

A broker is a person or a company that organises and carries out financial transactions on your behalf.

CGT (Capital Gains Tax)

When you sell an asset at a higher price than you paid for it, the profit you make is called a capital gain. Capital gains tax, or CGT, is the tax you pay on part of that profit.

Compounding (or compound interest)

When you save or invest, you earn interest or dividends on your money. When you leave that extra money in your account, the next time you earn, you'll earn on your original amount plus on the interest you've gained. Compounding is the simplest way to create wealth, because money you already worked for keeps earning you more and more.

Concentration risk

Concentration risk refers to the risk you take when you invest too much, relative to your overall portfolio, in a single company or sector. If something goes wrong in that specific asset or sector, more of your portfolio performs poorly, dragging down your overall performance. In other words, it's the risk of putting too many eggs in one basket (see Diversification, which can help with this).

Dependant

This refers to someone you are legally or financially responsible to maintain, such as your children, spouse or parents. Dependants can receive the benefit pay-out on your retirement products if you pass away.

Drawdown percentage

A drawdown percentage is the portion that a person withdraws each year from their living annuity. If your drawdown percentage is too high, you'll outlive your savings. The lower your drawdown, the higher the chance of your savings lasting and the more money left over for your loved ones when you pass away.

Dividend

When a company shares profits with its shareholders (investors who own shares in the company), the cash amount paid out to them is called a dividend. Once you retire, you can use dividend payments as income.

Diversification

Diversification is a way to manage risk when investing. You can diversify by investing in different asset classes, sectors, companies, geographies and currencies. This spreads your risk and minimises the chances of your investments performing poorly.

Equity

The value of the shares issued by a company.

FIRE

Financial Independence, Retire Early (FIRE) is a movement that centres around the idea that you can retire whenever you have enough assets to sustain you for life, rather than at any specific age. The FIRE movement encourages investors to strictly control their lifestyle expenses, save a lot, and only withdraw 4% of their portfolio annually once they retire.

Financial adviser (or financial planner)

A financial adviser or financial planner is a professional who can help you with all kinds of financial planning. Their job is to help you lower your financial risk and build wealth over the long term.

FSCA (Financial Sector Conduct Authority)

This industry body regulates the conduct of South Africa's financial services sector. You can contact the FSCA if you feel you've been unfairly treated by a financial services provider registered with the FSCA .

Guaranteed annuity (or life annuity)

A guaranteed or life annuity is essentially an insurance product that pays you a guaranteed income for a set number of years or for life.

Inflation

Inflation refers to the decrease in the value of money over time (it's called inflation because the cost of goods inflates over time). If you keep your savings in cash, its value (or purchasing power) will decrease over time.

Interest

Interest is the cost of borrowing money. You can either earn interest when you lend money out, or pay interest when you borrow money. Debt is expensive because you have to pay back the money you borrowed, plus the interest for using money you didn't have.

Investment

An asset or item you can buy in the hope that it will provide income for you in the future, or grow in value so you can sell it later at a higher price.

JSE (Johannesburg Stock Exchange)

The JSE is the biggest stock exchange in South Africa. A stock exchange is a marketplace where companies can sell shares to the public and where members of the public can buy and sell shares from each other.

Living annuity (or personal pension plan/ market-linked annuity)

A living annuity is an investment product that you can invest a lump sum in (e.g. at retirement), that allows you to draw a regular (usually monthly) income. You must draw between 2.5% and 17.5% each year.

Living expenses

The amount of money you need to maintain a normal standard of living, including the cost of food, housing, transport, clothing, etc.

Lump sum

A single payment or contribution as opposed to a number of regular instalments.

Offshore investments (or global investments)

These refer to investments made in countries other than the one you live in. They let you invest in different currencies, offer access to different investment opportunities, and can protect your portfolio from local investment risks.

Personalised benefits

Benefits that are tailored to meet your specific needs or preferences.

Pension

An income that you can retire on. It can either be from personal retirement savings, employer retirement funds or from the government. (see Retirement).

Pension fund

A retirement savings vehicle that provides members with a pension. It is usually funded by employer contributions, employee contributions or both. When you retire, you can withdraw up to a third of your pension fund.

Portfolio

A term that describes all the assets you own. It includes cash, shares, bonds, property you own, your retirement savings, your tax free savings and any other financial investments you have. It does not include insurance products like life insurance. Your overall portfolio can be made up of a couple of smaller portfolios held at different providers. For example, if your pension provider talks about your portfolio, they may only mean the money you have in a pension fund with them, not all your money.

Preservation fund

This is a retirement fund specifically designed to receive lump sum transfers from your employer's retirement fund if you change jobs or are retrenched. In this way, your retirement capital can be preserved and keep growing until you retire.

Provident fund

Like a pension fund, a provident fund is also a retirement savings vehicle that provides members with an income in retirement. It is usually funded by employer contributions, employee contributions or both. When you retire, you can may take part of your benefit as a cash lump( in line with applicable laws) and with the balance you must buy an annuity From 1 March 2021, the payment of retirement benefits from pension and provident funds are treated the same

Retirement

When you choose to leave the workforce because you've reached a particular age set by your employer, or because of ill health. Retirement ages on employer funds generally range from anywhere between 55 to 70 years old, however the law does prescribe a maximum retirement age Some people work for longer, if they can and want to, or if they are forced to because they can't afford to retire. Others, by planning and investing, are able to retire early (see FIRE).

Retirement annuity (RA)

A retirement fund which allows you to become a member and is not linked to your employment. It is an investment that helps you save for retirement. It has tax advantages, and you can make lump sum or recurring contributions. When you retire, you can withdraw up to a third of your retirement annuity in cash.

'Sandwich generation'

This is an informal term used to describe people wedged between two financially dependent generations - they need to support their aging parents and their children. Not having enough saved for retirement makes this a common challenge in South Africa.

TFSA (Tax free savings account)

An investment account where investment growth is tax-free. Currently (in 2021), you can contribute a maximum of R36 000 a year and R500 000 over your lifetime to a TFSA in South Africa. These maximum contributions can change as they are reviewed by the National Treasury each year.

With profit annuity (or hybrid annuity)

These are annuities that let you receive both a guaranteed monthly income and future increases linked to investment returns once you retire.