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Retirement Annuities

WHY RA's IS STILL A GOOD OPTION ... IT'S NEVER TOO LATE TO START

A RETIREMENT ANNUITY (RA) REMAINS ONE OF THE BEST WAYS OF MAKING PROVISION FOR RETIREMENT.  READ HERE WHY ...

Anyone who believes retirement is a walk in the park has to be certain of the following:  that they've saved enough money for retirement years, that they know how long they're going to live and that they can predict their state of health in old age.  For most people, these issues are frightening and the answers evasive, says Jacques de Villiers, head: Sanlam Professional Market.  However, retirement does not have to be a daunting prospect.  With the right planning and advice one's golden years can indeed be the best years of one's life.

KEY ELEMENT

If you are earning a salary, chances are that you will need to put extra money aside to be enabled to retire with 75% of your final salary - even if you are forced to save through your company pension fund.  A professional, however, must consider retirement a key element of financial planning.  In fact, for professionals a retirement annuity (RA) still presents one of the most sensible ways to fully provide for your retirement peace of mind, says Jacques.

SAVINGS

A major benefit or RA's is that they offer the potential tax and estate duty savings.  Remember, RA contirubtions can be deducted from taxable income up to certain limits.  Jacques says an RA also offers a transparent savings vehicle with a variety of underlying investment options so that risk can be spread over time.  Another benefit is the savings discipline it creates, as the investor may only access his investment at age 55 - or earlier in case of serious illness.  It is advisable to put an emergency fund in place and invest savings in an RA.  RA's also offer insolvency protection - they cannot be attached by creditors.

MEDICAL AID CONTRIBUTIONS

An RA offers a tax-efficient way to do pre-funding for your medical aid contibutions after retirement.  Since employers no longer fund medical aid contributions after retirement, the after-tax return on an RA can be used to provide for this.

TAX

When you want to retire and take the lump sum of your RA in cash, this can be partially or completely tax-free, while the monthly income drawn will be taxable.  You will not, however, pay tax on the investment returns.

ESTATE PLANNING

RA's also present opportunities for efficient estate planning, says Jacques.  "All funds in an RA fall outside of the personal estate for estate duty purposes.  Therefore the investor pays no estate duty (currently 20%) on the value of the RA."

Whether you are a professional who needs a RA as your primary savings vehicle, or a salaried employee who needs to supplement your pension fund, an RA offers and excellent opportunity to let money grow to ensure a more comforatable retirement.

If you are able to invest larger amounts in your RA over time, you will enjoy even greater benefits with compound interest.

"It is a sad reality that only about 6% of South Africans will be able to afford a comforatable retirement one day - including members of retirement funds.  So, now is the time for people to start making provision so they will not have to rely on family or dependants in their old age.  It's never too early to start!"