Why a retirement annuity is a good idea

Published on 28th July, 2020 at 10:27 am

For many years retirement annuities (RAs) have formed part of investors’ retirement savings plans. Roenica Tyson, Investment Product Manager at Glacier by Sanlam, reminds us why these products have increased in popularity and why you should probably consider having one in your investment portfolio.

It’s your decision – and it’s a good one

An RA offers flexibility in terms of who you can invest with and the investment choices you can make with the help of your financial planner. That means you can decide if and when you want to invest in an RA, how much to invest, and the underlying unit trust choices you’d prefer.

We’re just not saving enough for retirement

Most people who enjoy a retirement benefit at work opt to make the minimum contributions that the retirement fund allows for, and it may not be sufficient. So, topping up with an RA is advisable. People who invest in an RA and their employer retirement fund create a larger pot of retirement savings, which means they have more to invest to secure a better income during their retirement.

Here are 7 reasons why investing in an RA makes good investment sense:

1. It provides a kick-start to your retirement savings plan
Whether you’re a full-time employee, on a fixed-term contract, or self-employed, an RA can propel you on your retirement savings journey – as a standalone solution, or as part of a retirement savings plan.

2. Enjoy a bunch of tax benefits
A portion of your contributions is tax-deductible (currently up to 27.5% of the higher of taxable income or remuneration, up to a limit of R350 000 per year). You also don’t pay tax on any interest or dividends, and no capital gains tax is applicable. Read more about the tax benefits of an RA and how to make the most of them here.

3. It ticks many of the right retirement savings boxes*
An RA potentially offers you the opportunity for investment in a wide range of funds, risk-profiled solutions and share portfolios, customised to suit your needs and risk profile.

4. It’s affordable
A small monthly investment can make a big difference in your retirement savings outcome years from now. Want to know how much you should put away monthly to reach your retirement savings goal? Use this retirement calculator to get started.

5. Your savings are protected from your creditors
If you are in the process of insolvency, your retirement annuity investment is protected from creditors – they won’t be able to take from your savings. This ensures that your savings will be available when they are most needed and for what they are intended – saving for retirement.

6. You can’t touch the investment until you are at least 55 years old
Once you invest in an RA, it’s for the long haul. Committing to an RA until you reach retirement age is sensible. 60-year-old you will be grateful you did.

Learn more about the benefits of starting an RA here.

7. The underlying investment options of your RA are selected based on your particular risk profile
Every investor is different with different needs, lifestyles and risk appetites that change over time. This is why consulting a financial planner is critical. Appoint one to help you establish your risk profile, based on your life stage and financial needs. The table** below is an example of the retirement savings outcomes for three investors who each invested R500 per month in an RA.

**This is an example and has been created for illustrative purposes only.

You can also find out your risk profile by taking this questionnaire.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.