SHOULD I RESUME SAVING INTO MY RA?

I took two years off from saving for my retirement, as I had other expenses to cover. I am ready to resume but feel fearful because of the poor economy. I’ve noticed that the savings I accumulated have declined a little, and I’m wondering whether I should rather wait it out. I’m 37, and although I’ve always had a retirement annuity (RA), I’m not sure what’s best to do, as I’m also going through some changes in my personal life.

Name withheld

Jonathan Fisher, a financial adviser at PSG Wealth in Sandton, responds:

The economy isn’t in great shape. However, remember that investing is a long-term exercise, and your RA is a useful vehicle to assist you in reaching your financial goals.

My advice is to start contributing to your RA by as much as you are comfortable with. Draw up an annual budget, which will hopefully have an excess balance of savings, a portion of which can go to your RA contributions – taking into account the changes in your personal life.

If you’re comfortable with this amount, set up a monthly debit order so that your contributions occur monthly over a 12-month period instead of in one lump sum. In this way, you benefit from rand-cost averaging, smoothing out any sharp ups and downs that might occur in the markets.

I don’t think you should wait and put this off, as you could land up spending the excess savings rather than investing them, and the economy should improve over time, which, ultimately, should have a positive impact on the underlying investments in your RA.

Remember that contributions to your RA, in a tax year, will be tax-deductible. The limit for that tax year is 27.5% of your taxable income or remuneration, to a maximum of R350 000.

Any excess contributions will be carried forward for deduction in the following year.