When choosing a retirement annuity, what to look for

When choosing a retirement annuity, what to look for
When choosing a retirement annuity, what to look for. Image source: Pixabay

Beginning your journey saving to retire is the first and most crucial step in building an investment portfolio. A lot of South Africans don’t save enough for retirement. According to research, only 6% can retire comfortably. Planning your retirement for the future is one of the most crucial decisions you will ever make!

George Foreman stated, “The issue isn’t when I would like to retire, but what is my income.”

There are some benefits to having a retirement annuity included in your portfolio:

Annuities for retirement are a great way to fund retirement savings and offer a variety of tax benefits. The maximum contribution is 27.5 percent of your total tax-deductible income/remuneration is allowed (capped at R350 000 per annum). to retirement savings such as an annuity in retirement (RA) and enjoy tax savings on your taxable income. Growth in investment (dividends or interest as well as capital gains) in your retirement annuity are tax-free.

It also allows you to save money for retirement while being disciplined. Annuities for retirement are only available to be used at the age of 55, with exceptions to access it earlier, e.g. in the case of permanent disability/emigration. It is possible to make a lump sum in the event of permanent disability or emigration, debit order, or ad-hoc contributions.

What is the best way to withdraw your retirement account?

At retirement, up to one- of the entire amount may be taken as a lump sum, unless the amount invested is lower than R247 500 In which case it could be considered lump sum cash. The initial R500 000 of a lump sum withdrawal is exempt from tax in the event that you haven’t already taken a withdrawal from a retirement fund. You can use the remaining funds balance to buy an annuity which will allow you to earn an income that is regular and subject to tax.

Certain rules apply to retirement annuities. The Pension Funds Act sets limits on the underlying investments that you are able to invest in. Regulation 28 limits investment in certain types of asset. It’s intended to prevent investors from taking too much risks with their retirement funds. Different asset restrictions include an exposure limit of 75% to equity 40 percent in foreign equity (incl. Africa) and 30% in foreign equity (excl. Africa), 25% in real estate.

It is important that you structure your investment according your risk profile and age. It can be as damaging to your financial future to put too much money into your early years as it is to invest too aggressively toward retirement. The easy Equities RA is a fantastic option for retirement annuities.