Do you feel bleak about the future of South Africa?
Forget about crime, corruption, land expropriation and all that sort of stuff. Bad enough as these things are, right now, the middle class is on a hiding to nothing. And most worrying of all, it appears as if our Government hasn’t got any solution either.
Take their approach to tax…
Winston Churchill said that a country which tries to tax itself into prosperity is like a man standing in a bucket and endeavoring to lift himself up by the handle.
But what do they do? They raise VAT by 1%. Granted, there is a gaping hole created by corruption and sheer incompetence, but have they ever considered that:
- we’re already sitting with our economy on life support (Thank you China for the bailout. By the way, you do know we have no way of repaying you?),
- a dwindling flow of jobs similar to the sound bathwater makes as the final dregs flow down the drain, and
- A massive pool of unemployed, and often unemployable young people depending upon the few of us who do have jobs.
So, a quick economics lesson from a non-economist:
A growing economy needs growing businesses. Taxing the few businesses that are left to death doesn’t help either, does it? Unless you’re not particularly concerned about the long-term future of our country. Growing businesses employ more people which means more taxes at the end of the day.
Surely, all of us want this?
Of course, another way to kickstart your economy is by making your country an attractive destination for investors. New businesses opening in our country means even more jobs and even more taxes.
But why bother when there’s an even easier solution? Just borrow money from someone too gullible to realise you have no way of paying them back.
Even my bank knows I’m not good for a loan, so why would China lend us R33 billion, especially when we have no way of repaying this loan? Could it be because we can offer security for the loan?
- Would controlling the shipping lanes around the southern tip of Africa seem a fair trade?
- Or how about our platinum, gold, and diamond deposits?
But that’s all conspiracy theory; so, getting back to business…
Struggling businesses, on the other hand, are looking to cut costs, and one of those costs happens to be wages. There are two ways to do this:
- They can either cut back on staff or
- cut back on salary increases.
More people out of work means no tax at all and even more UIF demands.
More people with small salary increases combined with higher taxes means short-term gain for government and long-term poverty for everyone else.
This brings us to the middle class – those of us with jobs, cars, and unfortunately, mortgage bonds and debt.
What Carte Blanche discovered about our tough economy
They interviewed a real economist, a gentleman by the name of Trinity Ncube, who explained what the impact of the R2,28 trillion debt we owe as a country, is having on the middle class from the 1st of April 2018.
Some of the problems mentioned in that episode were:
- VAT increase of 1% has impacted everything from banking costs to transport,
- 5 petrol price hikes in 5 months (of which a large slice is taxes),
- Electricity price increases of 356% over 10 years,
- Stealth taxes on things like sugar, cigarettes, and alcohol, and finally
- A weakening Rand.
1 in 3 people it turns out have missed a car or bond repayment, and the banks aren’t displaying any compassion either. Cars are being repossessed left, right, and centre.
The bottom line is that since the 1st of April 2018, all of us have had a 25% to 30% drop in our buying power. Someone earning R20,000 a month is now earning, in real terms, R14,000 a month from April 2018.
- Earning R20,000 a month after expenses
- Having living expenses of R20,000 a month on the 31st of March 2018, and then
- From out of nowhere (on the 1st April) having your employer drop your take-home salary to R14,000 a month?
What would you do? I know what the unions would do.
According to Mr. Ncube, middle-income earners – those earning between R16,500 and R25,000 a month – are starting to slide back into poverty.
So, spare a thought for our pensioners and those about to go on pension.
Take the pensioner with a traditional annuity
This chap sits on a guaranteed monthly income for the rest of his life. In fact, that’s why he chose this option – he wanted a guaranteed income till the day he dies whether that happens next year or 50 years from now.
The problem with a traditional annuity is:
He can rest assured he’ll get his ten or twenty thousand Rand a month till the day he dies, but what he didn’t count on, was that the R20, 000 would lose 30% of its value in five months.
Sure, 30% loss in buying power over 20 years is inevitable, but 30% in one year?
Or what about the pensioner on a living annuity
This individual has slightly more room to move, but it’s like a frog in a pot of boiling water.
Sure, this lady can choose any income level between 2,5% and 17,5% per annum, and hopping from, say 5% per annum income to 17,5% per annum income, might help absorb some of the pain over the short term. However, to do that she needs to eat into her capital.
Remember how, earlier in this article, we spoke of our economy being on life support? Well, guess what? An economy on life support isn’t the place to generate stellar returns. An investment earning a return of 10% per annum will never compensate for a withdrawal rate of 17,5%.
The problem with a living annuity is:
As soon as you start eating into your capital, you start the slide down a long, and very slippery slope.
In conclusion, what should a pensioner or prospective pensioner do?
If you have the option, push out that retirement as far as possible. Our country is in turmoil, and the last thing you should be doing is counting your chickens before they’ve hatched. Wait for events to play out before retiring.
Develop a new set of skills so that you remain employable after retirement.
According to CNBC, in the USA, the unemployment rate for those older than 55 is 3,2% as of February 2018. That’s lower than the unemployment rate for the entire US. More companies are hiring experienced senior workers than ever before.
Who knows, this trend could occur in our own country, and who’s to say your productive life is over at 65?
Retire debt-free. We’ve seen first-hand, the devastation caused by taking on debt – or carrying over debt – through retirement. Most pensioners don’t have enough money to retire in the first place, so paying someone interest to lend money, is suicidal.
Don’t cash in retirement capital to buy new vehicles or settle debt. Think of your pension lump sum as seed and you as the farmer. The question is:
Is it better to plant all your seed and harvest a large crop or is it better to eat a portion of your seed and plant what’s left over?
We’ve heard all types of excuses for buying new motor vehicles with pension monies… “Oh, it’s got to last us for the next 20 years, so we need a brand new one.” Buy one and pay it off five years before retiring.
Downsize your medical aid until the day you really need it. Medical aid and frail care are some of your biggest expenses in old age. Many pensioners choose the most comprehensive medical aid plans available when they retire, only to downgrade later. Rather downgrade while your health is good, and upgrade when it’s not.
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