Imagine your ideal retirement – travel, relaxation, quality time with loved ones and pursuing your passions. Growing your wealth while you’re still working is key, and a retirement annuity (RA) can be your best ally in making this dream a reality. Whether it's complementing your workplace retirement plan, provident fund or personal savings, an RA helps ensure you have a steady income when you’re no longer able or willing to work a regular job.
Your golden ticket to financial freedom
An RA is designed to help you invest diligently, so you can enjoy both a lump sum payout and reliable monthly income in your golden years.
The majority of retirement annuities involve a monthly investment commitment, which can start from as little as R250 per month, or even lower in some cases. This monthly amount is based on your unique retirement goals and what you can afford to pay. It’s worth noting that certain plans also allow lump sum contributions throughout the years to top up the final amount you receive at the end.
Ultimately, your retirement annuity is a long-term personal pension plan that you create for yourself and is tailored to your unique needs. Beyond financial peace of mind, it offers valuable tax benefits and is protected from creditors and even your own impulsive spending habits.
Everyone deserves to retire in comfort
Whether you are self-employed, in a full-time career or just looking to bolster your pension or provident fund, retirement annuities pave the way for a more comfortable retirement. Keep in mind that the earlier you start investing, the more time you have to nurture and grow your retirement income.
South Africa’s retirement crisis
In South Africa, the sobering reality is that many citizens simply cannot afford to retire. A recent article on Moneyweb highlighted this issue, reporting on a new survey conducted by Genesis Analytics and the Financial Sector Conduct Authority (FSCA). The survey revealed alarming statistics, with only 12% of the 3.6 million retirees having any form of income in 2020. Sadly, more than 90% of retirees cannot sustain their pre-retirement standard of living and two-thirds have less than R50 000 in their retirement assets.
This means that most South Africans won’t have enough money when they reach retirement age, which would likely result in many people working longer, relying heavily on social grants, drastically downgrading their lifestyle or becoming dependent on their family.
Therefore, prioritising your retirement is vital. It's a significant decision that is crucial for avoiding unnecessary anxiety and hardship during a phase of life when you should be enjoying every moment to the fullest.
Are you retirement-ready? Here’s a closer look at why you need a retirement annuity:
Overcome saving sabotage
Saving money for the future is undoubtedly challenging. The temptation to dip into your savings and undermine your long-term goals is always present when these funds are easily accessible. Thankfully, with a retirement annuity, you're only granted access to your savings once you reach the retirement age, from 55 onwards, with a few exceptions. This restriction ensures you stay disciplined through the decades and meet your long-term goals without any shortfall.
Cut your tax and supercharge your wealth
Retirement annuities come with a range of tax benefits that can help your money grow exponentially. Here's a simplified breakdown of the benefits:
- When you cash out your policy, you can take up to one-third of your investment as a lump sum, and the first R500 000 of this amount is tax-free.
- With an RA, you pay less tax because your contributions are deducted from your taxable income. This reduces your overall tax bill and you may even potentially receive refunds from SARS.
- The returns you earn on your investment won't be taxed as income, dividends or capital gains.
- The funds you hold in your annuity won't be counted as part of your estate, meaning they are not subject to estate duty.
Exclusively for you and your dependents
If you’re declared insolvent, your retirement annuity funds are protected from creditors. Access to these funds is restricted to you and the dependents you designate. In the unfortunate event of your passing, your beneficiaries have the flexibility to decide how they receive their share of your RA—whether as a cash lump sum, an annuity or a combination of both.
Diversify your portfolio with less risk
Have you ever wanted to invest your money in different ways and in different parts of the world without taking too many risks? Well, your retirement annuity allows you to do just that. You enjoy the flexibility to tailor your portfolio according to your preferences, all while adhering to the limits stipulated by the Pension Funds Act (PFA). These limits are in place to ensure responsible investing by preventing undue risk-taking. For example, you cannot invest more than 45% of your money into portfolios from other countries. These kinds of rules keep your investments safe and balanced.
Shaping your future
Retirement annuities provide you with the tools to shape the retirement you deserve, which should be marked by financial freedom, peace of mind and the pursuit of your passions and happiness. So, seize the opportunity today, invest in tomorrow and retire in peace.
