We all dream about it… The day that we retire without a care in the world. We spend the majority of our adult-lives working towards retirement, planning for it and saving for it too. The reality, however, is that most people don’t have the financially “care-free” retirement that they dreamt of. Which is why all the more people are turning to Retirement Annuities (or RAs) early on in life.

What is an RA?

An RA is a popular retirement savings plan. Often used as an alternative to pension or provident funds, RAs are a great way to save toward your retirement. And the best of all is that it offers quite a bit of flexibility when it comes to how you want to save, such as whether you would like to invest a once-off lump sum, make monthly contributions or both.

It is often described as a tax-efficient approach to retirement because once you retire and your RA is mature, you can withdraw the first R500 000 tax-free.

When can I withdraw my money?

It is only possible to withdraw from an RA once you reach 55. But if you want to withdraw your funds at 55, it is helpful to remember that the longer your money stays invested, the better your RA will perform over the long-term and the more money you will eventually have at your disposal. This is an especially pertinent point, since legislation was adjusted in 2008 to allow contributions to be made to your RA until you are well over 70, which means you could potentially use some of your pension money to keep contributing to your RA in the hope of maximising the overall benefit when you do need to cash it in.

The bottom line?

Don’t withdraw from your retirement savings too early. Not only will you lose out on valuable investment growth, but there may be a vast amount of tax and even penalties applicable – especially if you opt to withdraw from your savings prematurely.