Understanding retirement annuities

A retirement annuity is one of the ways in which you can save for retirement and prepare for a financially secure future. Here’s a look at what a retirement annuity entails and whether it’s the right option for you.

What is a retirement annuity?

A retirement annuity (RA) lets you specifically save for your retirement by putting money into a dedicated investment fund that grows your money in a tax-efficient way and which you can only access when you turn 55, although you don’t have to access this cash or retire at this age; you can continue to let it mature.

It’s a way to grow your money so you can pay yourself an income in retirement and ensures your retirement savings are kept for retirement, locked away from any creditors but also from the temptation to spend it.

How does an RA work?

With an RA, you use money you would’ve had to give to the taxman to save. When you contribute to your RA, whether monthly or a lump sum, you’ll be able to claim back the tax on all or a portion of your contribution at the end of the tax year. That means you’ll be paying less tax, and you might even get money back from SARS.

You also don’t pay any tax on the growth of your money, and thanks to compound interest, your money has the chance to grow exponentially without being interrupted by tax or transactions until you reach retirement age.

Once you reach retirement age, you’re allowed to access up to one-third of your money capped at R500 000 in a lump sum tax-free. After that, you can structure it so that you either get paid a monthly income or can access an income from it on a flexible basis.

Why choose an RA?

• It’s easy to start, and you can customise your contributions, increasing or pausing as you need.
• It’s a tax-efficient way to save and grow your money.
• You can open it on your own in addition to other retirement saving solutions.
• It’s protected by law so that your money is used for what it was intended, your retirement, and kept safe until you need it.
• You get the full benefit of compound interest.

If you’d like to open an RA or need help with your retirement or financial planning, speak to one of our financial planners today.

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