Can you invest in a Retirement Annuity if you only have R300 a month to invest?
Picture it – no more need for that alarm clock, no rush hour traffic to deal with, no KPIs or deadlines to meet, and no boss to answer to. What do you envisage for your retirement years? Do you plan to have all your assets paid off by the time you get your last pay cheque, start travelling the world, challenge yourself to take up the hobbies you have always wanted to and kick back and enjoy the latter part of your life? Do you plan to help put your grand-kids through school and university? Do you want to involve yourself in something that occupies a good part of your day but doesn’t add much stress to your life? Do you see yourself starting your own business to keep earning money and keep you busy or will retirement not be an option at all?
In 15 or 20 years from now, how much money will you need to draw, from your retirement savings, each month, to be able to live comfortably? How much will you need to end up saving in order to draw this type of income? Right now, how much can you afford to put away each month, for your retirement savings?
We’re living longer these days, and the need to work beyond the usual retirement age has also grown. We would all like to be able to retire at some stage in our life, but planning for that time may seem daunting. Your retirement may be decades away or just around the corner, but it’s never too late to start saving for the next chapter in your life.
Not all of us work for an organisation and contribute towards a company pension. Some of us are self-employed and we don’t have a group pension or provident fund. This is precisely when you need to start investing in a Retirement Annuity.
What is a Retirement Annuity?
If you don’t already know what a Retirement Annuity is, here’s a little summary. It is a retirement fund based on the terms of the Pension Funds Act of South Africa. It is an investment which is tax effective and specifically designed for individual investors, not individuals who work for an organisation and contribute towards a company retirement fund.
Retirement annuities are ideal for the following people:
- Those who are self-employed
- People who’d like to supplement their existing pension or provident funds.
- People who earn large amounts of money through rental income or interest.
- People who don’t have access to work-place pension or provident funds.
Retirement Annuities also have tax benefits
Retirement Annuities have qualified for the same tax incentive benefits as pension and provident funds since March 2016. In other words, you can deduct contributions, made to a Retirement Annuity fund, up to about 27% of your taxable income or gross remuneration for tax, whichever one is higher. The 27% deduction limit applies to the contribution aggregate to all funds – pension, provident and retirement annuities. The overall limit in terms of tax-deductions is R350k per annum. It’s important to note that you can join as many retirement annuities as you want.
The advantages & disadvantages of a Retirement Annuity
- RAs are very flexible to change when needed
- They are tax efficient and are exempt from dividend tax
- Unit trusts are the primary investment structure
- There are no exit penalties, initial fees or administration fees involved
- RA contributions are protected from most creditors
- You can only access your funds at the age of 55
- Around two thirds of the proceeds at retirement must be used to buy an income
- Post-retirement lump sum and income payments are taxable (you may in some cases qualify for lump sum tax concessions and benefit from a lower average tax rate).
These South African companies offer Retirement Annuities, and we’ve provided you with the minimum monthly contributions you can make each month, with each company
|Company||Minimum Monthly Contribution|
Until next time.
The MoneyShop Team