Think very carefully before investing in an endowment says financial planner

Is an endowment policy a good choice when it comes to investing for your children or as a savings vehicle for yourself?

Certified financial planner Paul Roelofse says if you opt for this route, be very aware of some of the lesser known or understood rules of endowments.

Firstly, understand the minimum 5-year investment period, along with the tax implications of possibly paying Sars above your personal tax rate.

What actually happens after five years is that when you draw the money out of the endowment, it's tax-free. That sounds pretty good, but the lesser-known story is that inside the endowment during that minimum period you're investing, the actual proceeds _are _taxed and they tax at a flat rate of 30%.

Paul Roelofse, Certified financial planner

When you, for example, have the money in a money market fund, the fund itself will be taxed at 30% so you won't get the 7% that you think you're going to get.

Paul Roelofse, Certified financial planner

If your tax rate is less than 30% it doesn't really make sense to be involved in an endowment. You'd be far better off investing in those same funds on your own, without that 'wrapper'.

Paul Roelofse, Certified financial planner

When it comes to your debt load, Roelofse also points out that your yield from an endowment policy after tax and fees is not going to match the interest rate on, for instance, the credit card you're paying off.

The other restriction that could affect your long-term financial health is, of course, your money being inaccessible for five years.

Listen to Roelofse unpacking the pros and cons of endowments below:


Recommended

by NEWSROOM AI
Read More
[LISTEN] Rapper-turned-farmer Mo' Molemi: What makes him tick?

[LISTEN] Rapper-turned-farmer Mo' Molemi: What makes him tick?

The former Morafe member on the memory of Motswako 'king' HHP, the lure of agriculture and his generation's responsibility to SA.

Of Big Macs, petrol and wine - SA's cost of living not too bad in global terms

Of Big Macs, petrol and wine - SA's cost of living not too bad in global terms

Following the example of #ImStaying, financial planner Paul Roelofse finds the good news for South African consumers.

Helping to guard your child against the shadow side of social media

Helping to guard your child against the shadow side of social media

Parenting expert Nikki Bush has advice on dealing with anxiety and depression in teenagers and younger children.

Arthritis is not an 'old person's disease'

Arthritis is not an 'old person's disease'

On World Arthritis Day, Dr Fundile Nyathi discusses the variants of the disease and their treatment.

Ditch the idea that you must retire at 65, says financial guru Paul Roelofse

Ditch the idea that you must retire at 65, says financial guru Paul Roelofse

Certified financial planner Paul Roelofse says the concept of retirement age needs to be redefined.

Money Matters: Understanding an endowment policy

Money Matters: Understanding an endowment policy

Discovery's Head of Legal Services Harry Joffe describes on #NightTalk relevant information about endowment policies.

Popular articles
'We discuss stocks and options with our children at the dinner table'

'We discuss stocks and options with our children at the dinner table'

Bruce Whitfield interviews Basetsana Kumalo about her attitude to money (hopes and fears, successes and failures, etc.).

'Had abuser been a male teacher, we would have had a crazy outcry from society'

'Had abuser been a male teacher, we would have had a crazy outcry from society'

Pundits discuss the sexual misconduct allegations at Bishops Diocesan College in Cape Town.

[WATCH] Boy explaining what he heard when parents had sex goes viral

[WATCH] Boy explaining what he heard when parents had sex goes viral

Khabazela shares tweets and Facebook posts that have gone viral.

Yves Saint Laurent starts selling designer condoms for R95 a pop

Yves Saint Laurent starts selling designer condoms for R95 a pop

Some things in life just don’t need a “designer” counterpart, reckons branding and advertising expert Andy Rice.

[WATCH] 8-year-old's rant on bias of gendered clothing has social media talking

[WATCH] 8-year-old's rant on bias of gendered clothing has social media talking

Khabazela shares tweets and Facebook posts that have gone viral.

It's VW, but not as you know it - Why did Volkswagen change its logo?

It's VW, but not as you know it - Why did Volkswagen change its logo?

John Maytham asks what's behind Volkswagen's new-look logo...

Eusebius slams humourous reactions to Bishops teacher's sexual affair scandal

Eusebius slams humourous reactions to Bishops teacher's sexual affair scandal

The teacher has resigned following allegations that she was involved in a sexual relationship with an 18-year old pupil.

5 retirement saving tips for those who left it late

5 retirement saving tips for those who left it late

It’s better to start late than never! The Money Show’s Bruce Whitfield interviews Jeanette Marais.

[WATCH] Woman faints after hairdresser cuts 12-inch hair without telling her

[WATCH] Woman faints after hairdresser cuts 12-inch hair without telling her

Khabazela shares tweets and Facebook posts that have gone viral.