Balancing retirement and discretionary investments to achieve financial harmony

Home - Financial planning - Balancing retirement and discretionary investments to achieve financial harmony

Balancing retirement and discretionary investments to achieve financial harmony

Stienemarié Bonsma-Potgieter, CFP® – Financial Planner

On the road to financial freedom, it is easy to become fixated on retirement savings, often at the expense of other valuable investment opportunities. While prioritising retirement funds is an important building block for long-term planning, relying solely on them can limit your financial flexibility and overall well-being. The answer, striking a balance between retirement funds and discretionary investments to ensure a comprehensive and flexible financial strategy.

Contributing to a retirement fund is a prudent strategy, particularly when considering tax advantages. Regulations surrounding retirement funds have also been relaxed over the last couple of years making it a more attractive investment. Retirement contributions can significantly reduce taxable income, offering an immediate tax benefit. Additionally, these funds are less accessible before retirement, which helps to ensure that the savings remain intact for their intended purpose. The growth within these investments is tax-free, and they fall outside of your estate, providing further tax efficiency and protection.

However, relying exclusively on retirement funds has its limitations. There are strict rules regarding how and when you can access capital and income from these investments. Any income withdrawn is subject to income tax, which is much higher than capital gains tax paid on discretionary investments. Furthermore, retirement funds offer limited liquidity, restricting your ability to make lump-sum withdrawals for unexpected expenses or opportunities.

Discretionary savings, on the other hand, don’t offer immediate tax benefits but play an important role in a well-rounded and efficient portfolio. These investments provide the flexibility to access capital when needed for example, major purchases like car replacements, vacations, or medical emergencies. By incorporating discretionary investments in your portfolio, you can manage your overall tax rate in retirement, drawing from different sources to optimize your tax obligations whilst ensuring liquidity.

Achieving financial harmony involves more than just focusing on retirement savings; it requires a thoughtful blend of both retirement and discretionary investments. By balancing these two approaches, you can enjoy tax advantages and structured growth while maintaining the flexibility to access your funds when needed. This comprehensive strategy allows you to secure your future, truly giving you the best of both worlds.

About Galileo Capital

We are a dedicated and experienced management company for high net worth individuals and their families.

Get started…