Why you Should Invest in Retirement Annuity

Retirement annuity is a good avenue for investment and comes with very attractive advantages. Retirement annuity helps you to build up capital during your working years so that you have enough income to enjoy the same standard of living when you retire. Below are some reasons why you should invest in retirement annuity.

Tax benefits: You can invest up to 15% of your total income—less any amount that may be used for other pension fund contributions) tax-free. Not only can you invest with before-tax money, but you do not have to pay capital gains tax or income tax on your retirement investment. Your investment growth will be higher over the long-term as the growth remains in the policy and will usually offer you a better after-tax return than other types of saving.

Compound growth — Because you are saving over a long period, your money starts to work for you as you earn interest on the interest. If you save consistently over 30 years, less than 35 cents of each rand of income you receive will come from the contribution you paid in. The balance will come from the growth earned on your contributions and savings in retirement.

Disciplined savings – You do not have access to your retirement annuity savings until the age of 55. This may sound like a disadvantage but it removes the temptation to dip into or deplete your savings while you are working.

Long term growth – As markets fluctuate during different economic cycles, your consistent contributions will average out this variability. You also draw your pension over a (hopefully) prolonged period. Therefore, what happens in a turbulent investment market is of less concern to you.

Room to grow your savings – While pension funds generally require a contribution that is a fixed percentage of your salary, Retirement annuities offer more flexibility. Many people recognise the need to save but struggle in the short term to meet financial obligations. A retirement annuity allows you to slowly increase your contributions over time.

Diversified portfolio – This means you have access to different asset classes in a retirement annuity. You can invest 20% of your savings offshore without needing Reserve Bank clearance. You can also invest in other types of portfolios through your RA, such as direct property, private equity and fund of funds.

Freedom of choice – With many retirement annuities, you can choose your underlying investment, giving you some flexibility in how your contributions are invested and therefore, how they grow.