A retirement annuity is a good option for retirement savings if you do not have the option to join an employer provident or pension fund, as contributions can be deducted from your income for tax purposes.
Currently you can deduct contributions to a retirement annuity from your taxable income up to the greater of:
- 15% of your non-retirement funding taxable income per year
- R3 500 less current deductions to a pension fund, or
- R1 750
As you do not belong to any retirement fund, you should be able to deduct contributions equal to 15% of your taxable income. This percentage is expected to increase from 1 March 2016.
On a Retirement Annuity you can take up to one third of your proceeds in cash at retirement. The rest must be used to purchase a life or living annuity to provide you with income.
It is important to ensure that your retirement savings work for you by earning a decent return in excess of inflation. Most retirement annuities have a range investment options available, offering different levels of risk and investment return. Make sure you invest through a reputable institution, as your retirement investment must still be around when you retire.
Determining how much you should contribute and deciding on an appropriate investment strategy can be complex. A registered financial advisor will be able to provide you with advice appropriate to your specific situation.
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