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3 Ways to save for your retirement as a freelancer

By Athenkosi Sawutana

Being a freelancer may allow you to work where you want and determine your own income, but it also comes with many responsibilities, such as deciding where and how to save for your retirement.

While most employers ensure that their employees retire comfortably through a pension fund, this is hardly the case for freelancers who have to make a plan for themselves.

But where do you start? JustMoney finds out ways you can save for your retirement as a freelancer.

Tip: Start saving for your retirement by clicking here.

Invest in a retirement annuity

According to Allan Gray, an investment company, investing your money in a retirement annuity (RA) is the best thing you can do for yourself. This is because this retirement plan allows you to choose which unit trust you want to invest in.

Retirement fund regulations limit how much exposure you can have to equities, property, and offshore assets, but you can usually stop and start contributions as you need to, without penalty.

When you invest your money in an RA, you will not be allowed to withdraw your money until you retire or become permanently disabled. According to Allan Gray this is advantageous as it also prevents your creditors from accessing your money.

The company says RAs are tax efficient.

“Your dividends, interest and capital gains that you earn while invested are not taxed. In addition, you can deduct your RA contributions (up to the value of 27.5% of the higher of your taxable income or remuneration, capped at R350 000 per year) from your total taxable income, and may therefore pay less tax.”

Allan Gray also points out that when you’re ready to retire (anytime from age 55), you can withdraw up to a third of your investment in cash.

“The rest must be used to purchase a product that can pay you an income in retirement, such as a living annuity or a guaranteed life annuity,” the company says.

What about tax-free investments?

Tax-free investments (TFIs) are great products for long-term saving because, like RAs, your dividends, interest, and capital gains that compound over time are not taxed, says Allan Gray.

The asset management company advises that when you choose your TFIs, you must select the ones that have equity exposure because they offer good long-term returns.

TFIs are flexible – you can access your money whenever you want. Allan Gray says while this may be true, TFIs don’t allow you to save enough for your retirement. In addition to that - if you decide to withdraw from your account, you’ll never be able to replace it. Every time you deposit money to your account, it’s considered a new contribution which adds to the total annual or lifetime limit.

According to the South African Revenue of Service (SARS), you can only contribute a maximum of R36,000 per tax year (annual limit). You can keep your investment for as long as you want, but your total lifetime investment should not exceed R500,000.

SARS says you can have as many TFI accounts as you want, but the total investment still remains.  For instance, if you have two accounts, the sum of the amounts in those accounts must not exceed R36,000 per annum.

READ MORE: Which savings accounts offer the best interest rates?

Unit trusts are also a viable option

A unit trust is an investment plan, where people collectively put their money in the fund that buys and sells shares, cash, property, bonds on their behalf.

According to Allan Gray direct unit trust investments offer choice, flexibility, and easier access to your savings, but lack the credit protection of RAs and the tax benefits of both RAs and TFIs.

“Investing in unit trusts for retirement requires discipline: it can be tempting to dip your hand into the cookie jar. However, you can invest as much as you want to into the asset classes of your choice.”

READ MORE: Are unit trusts a good investment?

Use our retirement calculator to work how much you need to retire comfortably.

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