The words ‘retirement annuity’ (RA) may not sound sexy, but they are an investment product that you should consider as there are many benefits to investing in one. An RA is a tax effective retirement fund, which was created under the Pensions Fund Act.

RAs can be used as an investment for your pension if your employer doesn’t offer you any retirement options or if you do have a company pension plan, your RA can be used as a top-up.

Here we round up a few reasons as to why you should put your savings into retirement annuities:

  1. The tax benefits:

    There are tax advantages to investing in a retirement annuity. In March last year, the amount you can contribute to your retirement funds tax-free was increased from 15% to 27.5% of taxable income or remuneration, capped at R350 000 per year. If you haven’t reached these limits you have until the end of February to take advantage of them.

  2. They could provide you with the life you deserve:

    If you accumulate the right amount of your savings into your RA during your working years then you are likely to have a comfortable retirement. Speak to your financial advisor to find out how much you need to save into your RA so that you can retire with the same standard of living you are accustomed to now, if not better.

  3. Compound growth:

    By reinvesting your interest, which you would typically do in an RA, you would benefit from earning interest on your interest. As time goes by you will see just how much you benefit from the magic that is compound growth.

  4. It removes temptation:

    You can only access your RA at the age of 55. While this may sound like a disadvantage it is, in fact, an advantage – particularly if you are a bad saver and tend to raid your savings whenever you get the opportunity.

  5. Diversification:

    This, simply put, means you can invest in a range of products within your RA. You can even invest up to 25% of your investments into offshore assets and 75% of it into equities.

  6. Choice:

    Another great benefit of an RA is that you can choose the underlying investments of your portfolio. This gives you flexibility and control over your money. There’s a lot of choice out there though so if you can’t make up your mind, speak to an accredited financial advisor.

  7. It will provide you with an income:

    You can only take one third of the money in your RA out at retirement – which means you need to invest the rest of it so that you can benefit from an income at retirement.

It can be passed onto your dependents: Finally, if you die before you retire, the benefit of the retirement annuity must be paid to your dependents or loved ones that you’ve nominated in your will.

Until next time,
The Team