I am 50 years old and self-employed with two businesses. My house and cars are paid off. I have a preservation fund from when I was previously employed, but no provident fund. I put the maximum into a tax-free investment every year and now I want to put the maximum I can into a retirement annuity (RA). I have always been put off RAs because of the small percentage one can invest offshore and the restrictions around the annuity at retirement, but now think I need to maximise the tax benefit.
- At 50, is it too late to invest in an RA?
- How many years can I contribute for? Until 55 or 65?
- Can I invest in an RA directly with a provider?
- Do you have a recent survey of best-performing RAs looking at returns and fees?
Building up savings for a comfortable retirement in our opinion is right up there on the priority list. Saving money can be a challenge for many, but one should think of it as the building blocks to a pleasant future.
I am pleased that you have thought about your future and preserved your previous company pension fund and paid off your debt.
While saving for your retirement, there are ways that this can be done while taking full advantage of the tax benefit as you have mentioned.
Your tax benefit can be maximised by investing in the following two products:
- Tax-free savings account: You can invest R33 000 per tax year up to a lifetime maximum of R500 000. If you contribute more than these maximums, you will incur penalties. The key advantage is to maximise the growth as the interest, capital gains and dividends you earn are completely tax-free.
- Retirement saving contributions: Contributions to retirement funds are tax-deductible, within certain limits. The maximum tax deduction you may make in a tax year is limited to the greater of 27.5% of taxable income subject to a maximum of R350 000. Anything that is contributed over and above the R350 000 is called disallowed contributions. Disallowed contributions can be carried over to the next year of assessment and, if unused during the contribution period, can be offset at retirement to increase the tax-free portion of the cash lump sum you withdraw, or claimed as a tax deduction against the taxable income you receive at retirement.
Answers to your questions:
At 50 years old, is it too late to invest in an RA?
It’s never too late to start saving towards your retirement. In having your own business, you have the advantage of deciding when you would like to retire.
The other benefit of RAs is that there is no cut-off age in terms of contribution – you can continue to contribute up to the point you decide you are ready to retire.
If you can contribute greater than the R350 000 annual tax year limit this will then be deemed as disallowed contributions. Disallowed contributions will not go to waste. As mentioned, they can be carried over to the next tax year or be used as a tax benefit towards whatever you opt to do at retirement.
How many years can I contribute for? Until 55 or 65?
There is no age limit on retirement annuity contributions. Contributions can be claimed as a tax deduction per tax year up to certain limits at any age.
The only age limit that is attached to a retirement annuity is when you can retire from the investment product. It is only accessible (within certain limits) from retirement age, which is generally from age 55 onwards. The only exception that allows for an early withdrawal is an early retirement due to health issues or formal emigration.
Can I invest in an RA directly with a provider?
Yes, certain investment companies allow you to invest directly. It is, however, recommended that you seek the advice of a professional financial advisor, who will provide a retirement plan that will guide you in the right direction towards your retirement goals.
A financial advisor is extremely beneficial in advising which funds to invest into, ensuring that you are within Regulation 28 (restriction on exposure to certain asset classes) as per the Pension Funds Act, and taking full advantage of the maximum exposure you are allowed in certain asset classes.
Do you have a recent survey of best-performing RAs, looking at returns and fees?
Unfortunately I do not have a survey, but I can provide sound financial advice on what I recommend as the best funds to be invested in, with the lowest possible fees to ensure we do our best to meet your retirement goals.