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The Benefits Of A Retirement Annuity

When you’re working, retirement can seem very far away. That’s probably why so many people neglect to save towards it or see retirement savings as an unnecessary monthly expense. Yet wealth creation is all about the long term, and investing in a retirement annuity (RA) is a vital part of securing your financial future.

An RA is also a very useful tool for reducing your tax bill right now. For example, contributions to an RA are tax-deductible for South Africans. You can deduct up to 27.5% of your gross remuneration or taxable income (whichever is higher) in respect of your total contributions to a pension, provident or retirement annuity fund, subject to an annual limit of R350 000. It’s one of the few options that lets you pay less tax while you save for the long term.

“Not only is an RA an excellent financial planning and savings tool, it is also very tax-efficient,” says Paul de Waal, Senior Wealth Specialist at Carrick Wealth. “While tax regimes everywhere are making us pay more and more taxes, this is one of the few exceptions where the government is actually encouraging us to pay less tax so that we can save for the future. It is also flexible and can be tailored to suit your specific requirements and financial capability.”

Part of that flexibility comes from the fact that South Africa has no compulsory retirement age. That means you can contribute to your RA at any age and at any time, in a lump sum or regular instalments, and you can choose to let it mature at any time after age 55.

However, only one-third of your RA benefit can be withdrawn any time after the age of 55. The rest must be invested in an income-providing product like a living annuity or a guaranteed life annuity.

There are however other balancing factors to consider such as investment restrictions only allowing a maximum of 30% to be invested outside of South Africa and if you emigrate, only being able to access your funds after being out of the country for three consecutive years, effective 1 March 2021. This all lends itself to seeking advice from a credible, qualified wealth expert whenever you make important financial or investment decisions so that you are aware of all options available and can plan accordingly.

Even if you intend to work until you’re well into your 70s, there will come a point when you’re unable to earn an income – and that’s when your retirement savings will make all the difference. 

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