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LOUISE FAIRSAVE: Personal retirement fund

Louise Fairsave

LOUISE FAIRSAVE: Personal retirement fund

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How can one be in a position, somewhere between the ages of 50 and 60 years old, to consider retiring from full-time work? The short answer is to establish a personal retirement fund – a fund that can even reduce a worker’s dependence on a state or company pension.
The earlier in one’s working career that even the smallest of savings can be set aside, the easier will be the burden of accruing a sizeable retirement fund. Then, by investing those savings, the fund can be significantly enhanced.
The key to growing the fund is to save as much, and for as long as possible to invest at optimal return as safely as possible and not to dip into the fund unless absolutely essential.
When it is time to hatch the retirement nest egg, the fully grown ostrich that would be available may pleasantly surprise the retiree.
Here are six practical approaches to establishing a personal retirement fund:
1. Workers may, where it is allowed, make voluntary contributions to the existing pension scheme provided through their employer. Currently, a prescribed amount of the worker’s income may be voluntarily contributed free of income tax.   
The rate of return on the sum saved within the pension scheme is generally higher than the worker can get elsewhere with similar limited risks. Money saved here is, however, not accessibleto the worker until retirement, not even as collateral.
2. A deferred annuity can be purchased through an insurance company. This will guarantee a certain stream of income at a future period. If the annuity is registered with the Inland Revenue Department, income tax concessions may be available.
Typically, though, once the contribution to the annuity are made claiming tax incentives, the purchaser cannot access the funds in the annuity before retirement age without incurring income tax charges.
3. Savings can be placed in a Registered Retirement Savings Plan (RRSP) up to a specified maximum on a tax-deductible basis. Insurance companies, commercial banks and other financial institutions offer the RRSP product.
The RRSP can be attractive to workers even at the start of their work careers as one early withdrawal is allowed from the fund, provided that it does not exceed $25 000 and that the funds withdrawn are invested in a first home for the RRSP owner.   
4. Government Savings Bonds may be purchased at a discount maturing to face value usually over a five-year period. The interest yield is around four per cent. This investment is secured by the Consolidated Fund and the interest earned on an amount not exceeding $50 000 from any one issue of bonds is tax-free.
5. Savings towards retirement may also be invested in the stock market. This can be a very risky undertaking and not recommended for anyone, say, within ten years of retirement. Capital, if lost, becomes difficult to replace as the end of one’s work career draws near.  
6. Retirement savings can be placed in a term deposit. The longer the term of the deposit, the higher the rate of interest that may be negotiated.  
 • Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.