Investing in a retirement annuity (RA) before the end of the tax year in February, means you could not only enjoy tax benefits, but also have peace of mind knowing that you’ve supplemented your retirement savings with a very popular investment, says Teresa De Quintal, Business Manager Professional Financial Services Sanlam Financial Advisers Kwa-Zulu Natal.
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5 reasons to invest in an RA:
1. Getting ready for retirement by boosting your savings.
Few people save sufficiently through an employer retirement fund to allow them to retire comfortably. An RA can boost your other retirement savings to ensure that you’re able to maintain your standard of living in retirement. Remember, when you’re employed you use your salary to pay for medical scheme cover and other expenses. When you retire, you’re likely to continue to have to fund many of these expenses, but you won’t be earning the same income any more. An RA can help you to meet these expenses.
2. The power of compound interest
If you save over a long period, your money earns interest. Compound interest is the interest that you will be earning on the interest that has been reinvested in your RA. So savings in an RA over, say, 20 years means that a large percentage of your ultimate savings will be the result of the growth that compounded on your savings.
RAs are meant to be long-term savings solutions, so they also enable you to smooth out fluctuations in the market and gain the long-term benefits of investment.
3. RAs offer tax benefits
If you take out an RA before the end of the tax year in February, you will enjoy reduced income tax as RAs are tax friendly. Your RA contributions are tax deductible up to a prescribed maximum of your taxable income every year. So if you pay a 40% marginal tax rate and invest R100 in an RA, R40 of that amount may effectively be paid back to you by SARS.
Not only can you deduct your contribution, but the investment return on the RA – this is the income and dividends on your investment – will not be taxed either.
4. Disciplined savings
You can only access your RA when you reach age 55. This prevents you from withdrawing money from your RA prematurely.
5. Additional benefits
In addition, should you ever fall on hard times, your RA is protected from creditors.
Further, RAs offer you access to a variety of funds and asset classes and you can choose your underlying investments.
Teresa says you should speak to a qualified and knowledgeable financial adviser to obtain the best advice on RAs as investment vehicles.
For more information contact Teresa De Quintal on 031 300 0303 or on 082 443 8046.
