How to live comfortably years from now

A retirement annuity (RA) is an ideal savings vehicle – and putting some of your bonus money into it as soon as possible will serve you well in future.

What exactly is an RA?

An RA is a tax-efficient investment vehicle designed for individual investors. You can use it if you’re self-employed or even to top up your existing workplace pension or provident fund savings. An RA offers flexibility in that you can invest a once-off lump sum or make a monthly contribution.

An RA encourages you to be disciplined about saving as you need to remain invested until you’re at least 55 years old. At retirement, you must transfer at least two thirds of the RA benefit into a product that’ll provide you with an annuity income.

The effort now will be worth it

Putting just R1 000 per month into an RA now can mean the difference between a comfortable life after your working years or time spent worrying about affording the basics like food and fuel. Nobody wants to think about their retirement at age 20 or even 30. But the reality is that the earlier you start, the more you’ll have saved years from now.

Numbers don’t lie

To illustrate this point, let’s compare two people who each start to save R1 000 a month until they turn 60. Saleh starts at age 25 and Gillian at 35. This 10-year difference will have a staggering effect on the respective amounts they’ll have saved by the end.

Saleh and Gillian both decided on an RA as their savings vehicle. In our example, we assume investment returns of 12%. An investment of R12 000 (12 x R1 000) per annum is used until each person turns 60.

Taking into account their contributions and investment growth, by the time they reach the age of 60, Saleh will have saved just over R6,5 million while Gillian would have just over R2 million. This shows that time really is money – there’s huge value in starting to save as early as possible.

Why an RA as part of your savings plan is a good idea

  • It’s tax-efficient. It allows you to save on income tax, capital gains tax or estate taxes
  • It encourages you to be disciplined about saving. You may not touch the money you put into an RA until at least age 55
  • It could ensure a comfortable life long after you stop working one day. Think of the people in your life who are older than 55. Who do you think probably started saving early on in their adult life?
  • You can select from a wide range for the underlying investments. Make informed investment decisions with the help of your financial planner, who has the support of a team of investment research professionals at Glacier by Sanlam.

Having an RA as part of a savings plan is one of the most sensible financial decisions you can make. Talk to a financial planner who’ll help you design a plan that’s right for you – with your lifestyle and needs in mind.

This article was supplied by Glacier by Sanlam. Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.