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Retirement Annuity- Two birds with one stone

July 17, 2023
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Aron Samuels
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Aron Samuels

When it comes to financial planning, its not often that you can kill two birds with one stone

When it comes to investments and financial planning, its not often that you can kill two birds with one stone. However, a Retirement Annuity puts you in a position to address two major challenges you are currently facing by implementing one solution.

  1. RETIREMENT: Less than 7% of South Africans can retire independently. A recent survey revealed that majority of respondents indicated they dont feel comfortable about their retirement.
  2. TAX: As we move up the earnings ladder, we also move up the tax bracket ladder. In principle, the more you earn, the more tax you pay. While this may seem discouraging, reducing your tax liability might be easier than you think.

While retirement savings and tax could be giving you a headache heres the painkiller  The Retirement Annuity (RA)

What is a Retirement Annuity?

A Retirement Annuity is a tax efficient investment vehicle you can use to make provision for your ideal retirement.

Your retirement annuity is the vehicle and you are able to determine the engine which drives it. The engine would be the underlying unit trust within which you invest your funds in. Think of it as your own personal pension fund.

Its important to remember that a retirement annuity is not linked to a specific employer, so you are able to maintain and keep making contributions regardless of changes in your occupation or employer.

What are the rules around a Retirement Annuity?

The legislation which governs retirement annuities sets a framework within which Retirement Annuities operate. There are certain restrictions to which underlying assets can be invested in when using an RA.

The most appropriate assets for you  to invest in will be determined by a number of factors such as your risk profile and how far you are away from your retirement.

APPROPRIATE ASSETS = RISK PROFILE + TIME TO RETIREMENT

Saving for retirement and tax?!

HERES WHERE IT GETS GOOD

surprised about a retirement annuity

You are able to invest up to 27.5% of your taxable income on an annual basis to a maximum of R350 000, this means that at the end of the tax year you can claim back the tax in respect of the contributions made towards your RA. In essence, contributions to a RA reduce your taxable income.

MORE CONTRIBUTIONS TO YOUR RA = LESS TAX YOU NEED TO PAY


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