Retirement sounds like a fun time of sipping tea all day and keeping up with the latest TV programs. Well maybe in the movies it is like that, for many of the people around us it is a stressful time of trying to make ends meet. This often comes down to not having enough retirement savings or retirement annuities.
While this may have been the destiny for your parents or grandparents, it does not have to be for you. By starting monthly contributions into a retirement fund you can save up enough money to retire comfortably! Using tax efficient vehicles like Tax Free Savings Accounts and Retirement Annuities are a great way to build up these savings! But what is a Retirement Annuity and how do they work?
How Do Retirement Annuities Work?
Retirement Annuities, according to 10X Investments, are defined as: “A retirement annuity (RA) is a retirement fund in terms of the Pension Funds Act. It is a tax effective investment vehicle”
Retirement Annuities are a great way to bolster up your own retirement savings apart from your employers solution. They allow you to invest in the fund, however, you can only access the money when you turn 55. The annuities allow investors to invest in funds that meet specific requirements and allow investors to reduce their taxable income by investing in these funds. This is to a maximum of 27.5% of your annual income or R350 000 per annum.
Retirement Annuities also carry huge tax benefits upon withdrawal. Retirement annuities allow beneficiaries to take up to 30% of their annuity as a lump sum at age 55. The rest must be used to buy a pension fund or living annuity.
This lump sum is taxed on a sliding scale with the first R500 000 being tax free. This means all returns, capitals gains, etc up to R500 000 in your retirement are tax free.
Where to get Retirement Annuities in South Africa?
There are many places to take out a retirement annuity in South Africa. You can go to many of the top invest managers such as Coronation, Allan Gray, Ninety One, etc. These asset managers have some of the best performing funds.
If you want to save on fees, you could look at a company like 10X investments who have shown great returns while slashing the fees of their funds! This means more returns for you and less paid out in fees all leading to more money when you retire.
Easy Equities Retirement Annuities is also a consideration if you want to manage your own set of funds. The team at easy equities have built up a number of Bundles and Unit Trust options including offerings from Coronation, Allan Gray, Nedbank, Prudential, Emperor and many more.
Often a great person to speak to is a registered and licensed financial advisor who has the knowledge and experience to guide you through selecting a retirement annuity. Need an Advisor? Click Here.
Retiring may seem glamourous in the movies, but it takes work to get to the point where you can actually afford to retire. Start early and consider opening a retirement annuity. There are many options so make sure to do your research to choose the best one for your goals.