As the afterglow of the festive season fades, we turn our attention to planning for the next 12 months and beyond. This is a great time to reassess where we are in our journey to financial well-being.
One of the key components to this is when we take our steps into eventual retirement and what will that look like for us. Will we be able to maintain our current standard of living or will we need to make some adjustments to how we live?
Here is where a trusted financial planner will be able to assist you. They will be able to look at your current retirement preservations and what you need to do going forward to reach your retirement goals.
Retirement annuity fund
One of the ways in which you can enhance your provisions to your retirement savings is through the use of a retirement annuity fund (RAF).
A retirement annuity (RA) is essentially an investment product to which you can make lump sum investments and monthly contributions in order to bolster your retirement savings. In addition to the benefit of saving towards your future it offers a place where you can save in a tax efficient way.
Tax legislation allows you to deduct from tax each year, contributions to retirement funds up to certain limits. The current limit on tax deductible contributions is 27.5% of your taxable income. This limit takes into account all contributions made across all your employer retirement funds and retirement annuities.
In addition to the upfront annual tax benefits of contributing to these products, all growth and returns generated over time in the funds are also tax free.
Something to be aware of is that we will never completely escape paying taxes and when you do eventually retire from your retirement annuity you will be able to take up to a third in cash, subject to tax (first R500,000 lifetime allowance is tax free and the remainder is taxed on a sliding scale).
The remaining investment needs to be used to provide you with a pension (income for life). This pension or income annuity, will attract income tax.
Decisions about your future financial well-being can be overwhelming. That’s why when making decisions which have such an enormous impact on your life, it’s always best to approach a professional financial planner for advice.
They can review your individual circumstances, current savings and what your retirement goals are. Critically this should be done as a family, so don’t forget to involve your spouse in this common goal. And together you can co-create the right plan for you to reach those goals.
February 28 is the end of the tax year and so time is limited to take advantage of the tax deduction for the 2018/19 tax year. Don’t wait too long to engage or make a decision regarding bolstering your retirement savings. It’s never too early to start creating the future you want to have.