Nobody wants to confront the idea of retirement, especially when you are young and enjoying a good job that provides you a regular form of income. That’s great, but what happens when you are too old to work or forced to take early retirement?
It’s never too early to plan for your retirement, and actually you should start in your 20s. The earlier you start, the more you can accumulate, and the more comfortable you will be in your retirement. An earlier start also is better at getting around the issue of inflation. The later you leave it the more you need to put aside, and the amount you accumulate could be a lot less.
Retirement Annuities (RAs) are specific financial products designed to look after you from the age of retirement.
Because they are intended to take care of you in your old age by paying you a liveable income each month to maintain a lifestyle as close as possible to the one you enjoyed while working, they also come with great tax benefits.
Tax benefits
In South Africa contributions can be deducted from tax provided they fall within certain limits.
Also, you will not be liable for income tax or capital gains tax on the saving during the term of the investment.
If you happen to earn any dividends during the lifetime of the RA these will not be taxed either.
At retirement, the remaining value (minimum two thirds) can be transferred to an annuity without any tax being applied to the balance as your money will still be managed by the RA.
It is important to note that while it’s also better to start sooner rather than later, RAs are open to individuals at any age. And if you are still healthy and able to work after the age of 55, you can carry on doing so. In South Africa it is no longer compulsory to retire at age 55, so you can extend the lifespan of your RA from any age after 55 and only take it when you really need it.
You will need to see a financial advisor to discuss the best RA for you. But please don’t hesitate. The RA Season is now open and contributions made before 28 February 2015 which is the end of the tax season for the year, will be tax-deductible within certain limits.
Get an RA today.
Information supplied by Octagon Financial Services.