One of the main risks retirees face, is outliving their savings. Many of us will live 30 years beyond retirement age, so in essence we expect our retirement savings to “work for as long as we have worked”. With this in mind, the ideal time to start saving is from your first pay cheque. A good rule of thumb according to Allan Gray, is to save 17% of your salary starting at age 25. If you start any later, you will need to save more or retire later.

There are a variety of investment vehicles that provide different benefits that help you in your journey to financial independence. In this article we will be looking at Retirement Annuities (RA).

All investment growth in a Retirement Annuity is tax free and the premiums that you pay can be claimed as a tax deduction (to specific maximums) from SARS.

Your RA investment will run to a minimum age of 55 (unless the investment value is less than R7000, you become permanently disabled, formally emigrate or “shuffle off this mortal”). The investment will continue past the age of 55 until you advise us that you are ready to retire.

There are a number of options available at retirement:

• If the value of the ‘fund’ is less than R247 500 – you can withdraw the full amount.
• If the value is greater than R247 500 you have the option of taking 1/3 rd as a cash lump sum and the remaining 2/3 rds must be invested in a traditional annuity or a living annuity that will pay you an income.
• Withdrawal Tax Tables are used to calculate the tax payable on the 1/3rd portion or part-portion (only the first R500 000 of all your pension fund withdrawal proceeds are tax free).

Regulation 28 of the Pension Funds Act limits the maximum exposure that you may have to various asset classes (such as equities, property, foreign assets and African Assets) with a maximum of 30% in international assets. As financial advisers – it’s our job to help you align with the regulations and also ensure that your investment portfolio suits your risk appetite (i.e. you may be a conservative, moderate or
aggressive investor).

There are a multitude of underlying investment components that may used in portfolio construction and accessed through a RA, to name a few:

Local and International

• Unit trusts (Money market funds to Specialist Equity funds)
• Exchange Traded Funds
• Tracker Funds
• Personal Share Portfolios
• Structured Products

The Benefits of a Retirement Annuity:

• Saving towards financial Independence at retirement.
• Tax Free: All growth in a RA is tax free.
• Annual Tax deductions: Your contributions are tax deductible (within certain limits)
• Access to investment management expertise: Research and fund selection undertaken by reputable investment managers. Portfolio managers available on share portfolios.
• Flexible solutions: “Life happens while we make plans”. Things change and so do we – the flexibility of the product is key.
• Estate Planning: If you die before you retire, your RA will not form part of your estate and does not attract estate duty**. A board of trustees is responsible for protecting the interest of its members. The Trustees, as per the Pension Fund Act, must pay the
  death claim value to dependents and will allocate the proceeds on an equitable basis.

**All over-contributed premiums that haven’t been applied in terms of a carry-over deduction, from one year to another, will fall into the deceased’s Estate.

If you are considering making any changes to existing RA’s, it is important to check the terms and conditions to understand the impact (financial or other) that the changes may have.

Contact us to schedule an appointment to review your existing financial plan or to start an investment portfolio to help you achieve greater financial independence.

www.scainsure.co.za

Stephen Cloete and Associates

087 160 0877