Retirement may seem like it’s a lifetime away, but time has a funny way of moving really fast and before we know it, we are getting used to being at home with no obligation to be anywhere or do anything - blissful retirement after decades of hard work.
However, your retirement will be much less blissful if you haven’t planned for it properly. In this article, we answer some important questions that you should be asking about your retirement.
Although it’s always best to start as early as possible, it is never too late to start planning for your retirement. However, the later you start, the more aggressively you will have to save, invest and plan so that your future, retired self can live a comfortable life.
When you start thinking about retiring, the first question you should ask yourself is how much you will need to live comfortably once you retire.
To answer this question, think about what your goals are – do you want to travel, do you want to settle down and live on a self-sustaining small-holding, or do you want to move into a high-end retirement village with all the facilities you could ever need?
You would also need to think about how much money you will need to take care of yourself in terms of health, monthly groceries, and other expenses.
Once you have an idea of how much you will need to pay for the lifestyle you want to have when you retire, you can calculate how much you will need to save every month to make it possible.
Retirement annuities (RAs) are great savings vehicles for those whose employers don’t offer retirement funds as part of their employment packages. Consider RAs your personal pension fund.
Having an RA can reduce your taxable income as your contribution are tax deductible from your income up to certain limits. Additionally, contributions to provident and pension funds are also tax deductible.
Contributing to a retirement annuity (RA) holds the best of both worlds: build long-term wealth and reap the tax benefits.
SARS encourages individuals to save for retirement by rewarding RA investors with a tax refund
SARS rewards you for contributing to a retirement fund now so your older self does not become dependent on the state – or society – in retirement. Therefore, since 2016 you can contribute up to 27.5% of your total annual income to a retirement fund (the contribution is capped at R350 000) and get a tax refund. Examples of a retirement fund is a pension fund, a provident fund and an RA.
An RA has other benefits too
An RA has several benefits other than a tax refund on annual contributions: no tax on interest, dividends, or capital gains while you remain invested; protection against creditors; and protection against yourself (you can’t touch the money until age 55) – to name a few. A new-generation RA also allows you to stop your contributions at any time and take it up again at a later stage.
Employer Retirement Funds
Not all employers offer retirement funds and, if they do, a monthly contribution is usually automatically taken from your salary each month.
Pension funds allow you to draw up to a maximum of one third of your savings in a cash lump sum when you retire. However, it’s important to note that this cash lump sum is taxable.
Do I need a certain amount of money to start a retirement fund?
Thankfully there is no minimum requirement for starting a retirement savings. The most important thing is that you start saving as soon as possible.
The great thing about retirement savings funds is the compounded interest that you earn which really benefits you overtime. In other words, the longer you save for, the more your capital can grow.
Like most investment policies, you will nominate a beneficiary who will receive the remaining funds when you pass away.
According to law, the trustees of the fund have the right and discretion to pay your benefits to your beneficiaries in a way that is fair and equitable.
Saving for your retirement is one of the most important things you can do for yourself and the sooner you start, or the more aggressively you can save, the better.
We know that navigating the financial world to try and find the best savings vehicle for your retirement can be tricky.
That’s why our financial planners in Johannesburg are here to help you. With decades of financial planning experience behind us, we can help you make the most of your money, ensuring that you can retire comfortably.
For some more information about retirement, watch this two-part webinar on our site which covers everything you need to know about retiring in South Africa.
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