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Preparing for retirement: Is a retirement annuity for you?

by , 06 October 2015

A retirement annuity is a popular way to save for your retirement.

Since their launch in 1960, many people use them as a way to save for their later years as retirement annuities come with tax benefits.

So how does a retirement annuity work? Who are retirement annuities for? And what are the benefits of using a retirement annuity for saving for retirement?

Read on to find out...


How a retirement annuity works


A retirement annuity is essentially a savings plan with tax benefits. You can also opt to add on life cover or disability cover to your scheme.

One appeal of a retirement annuity is they’re quite flexible. You can increase or reduce the amount you contribute.

Under current legislation, you can’t draw from your RA until you turn 55, unless you’re in ill health. Nor can you contribute to one if you’re older than 69.

The performance of a retirement annuity depends on investment performance.


Who are retirement annuities for?


Retirement annuities are great if you’re self-employed or your employer doesn’t offer a pension scheme.

They’re also good if you want to increase your retirement savings.


The benefits of a retirement annuity


The main two benefits of retirement annuities are:

  1. Favourable tax treatment.
  2. If you go bankrupt, retirement annuities don’t form part of your estate so are safe.

When you gain access to your retirement annuity at 55, you can take one third of it as a lump sum, unless the amount it less than R75,000. This amount will likely rise going forward. It your lump sum is below the threshold amount, you can take the full amount.

Take a look at your current provisions for retirement. If your pension is likely to fall short of your requirements or you don’t contribute to a pension, consider starting a retirement annuity.

So there you have it. Working out whether a retirement annuity is for you.

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Preparing for retirement: Is a retirement annuity for you?
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