Having enough money to retire comfortably is something that everyone worries about. But the question we should be asking is “how can I make sure that I am financially prepared for retirement?”
The answer lies in retirement planning as part of your overall personal financial planning strategies and our financial planners can assist you with this.
However, one of the best ways to save enough for your inevitable retirement is to invest in a retirement annuity. In this article, we discuss the benefits of a retirement annuity in South Africa.
When you invest your money in a retirement annuity, that money will earn interest which is how your money grows. However, compound interest is interest earned on the interest that has been reinvested into your retirement annuity (RA). In other words, instead of drawing your interest earned and spending it, if you leave it in your RA, you will earn interest on interest and your money will grow even faster.
Retirement annuities are tax friendly savings vehicles and if you take out an RA before the end of the tax year, you can enjoy reduced income tax.
RA contributions are tax deductible up to a prescribed maximum of 27.5% or R 350 000 of your annual taxable income. In other words, if you invest R1000.00 in your RA, SARS may effectively pay you back an amount of R450 if you are on 45% marginal tax.
Additionally, the dividends and income earned on the RA will not be taxed either, making your RA a great tax efficient savings mechanism.
For those who have the benefits of an employer retirement fund, adding a retirement annuity can really bump up those savings. Often an employer retirement fund is not enough to ensure you maintain your standard of living after retiring. With the additional compound interest and tax savings benefits of a retirement annuity, you can have peace of mind knowing that you will have enough money to retire comfortably, especially since you will no longer have a monthly salary to cover your expenses.
One of the major benefits of an RA is that it is protected from creditors. So, should you fall on hard times, the savings you have worked so hard for cannot be taken during any legal repossession procedures.
Although “force” sounds like a strong word, when it comes to saving money, this is the best approach. With retirement annuities, you are unable to withdraw from the account before the age of 55 which means that you will have no option but to let your money grow.
Retiring is your reward after a life of hard work but retiring with enough money to cover your expenses and live comfortably is only possible with careful planning and disciplined saving.
Our financial planners in Johannesburg can assist you with all aspects of your personal financial plan, including and especially retirement planning.
Contact us to find out more.
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