Question:
How much monthly interest would I earn on an investment of R800,000? We are about to sell our house, our main investment, which is fully paid. We expect to get in the region of R1.2m, of which we want to invest the above amount, and then rent a small apartment in a security village. We are hoping that the interest earned would contribute towards the rent. Is this viable? We are 60 & 59 respectively, and I am still working.
Answer:
Hi Ilana,
This falls into the ambit of financial planning, which we cannot do in this forum (we would need to do a full financial needs analysis). Factually, however, you can presently expect to earn interest of around 5%-6% pa (say 5,5%) which would equate to around R5 500 pm (before tax) on R1,2m. This rate only just matches the current inflation rate. Cash is a safe but low-return investment, and if you spend the interest, the capital value's purchasing power will erode over time. Your rental cost will increase over time, with inflation, but your income will remain steady (if interest rates don't change and you don't re-invest the interest income), so your investment will cover less and less of your rental cost over time. Rather, you should consider an investment that can deliver a sustainable income that can grow at above the inflation rate over time (eg a living annuity or a guaranteed annuity with inflation protection).
For further information, take a look at our blogs on how these annuities work.
