Your retirement can be an exciting and fulfilling time in your life. A time to do the things you always dreamed of doing. Things you did not have the time to do before.
Like spending more time with family and friends, seeing the world, helping others, taking up a new hobby, and spoiling the grandchildren. You could restore old furniture, design and make items, or write books. You could buy a home at the sea, or visit places you have always wanted to visit. It is a sad fact that very few people can really afford to retire and enjoy all these things. It is therefore critical to set up a retirement annuity in order to ensure financial security during one’s retirement.
A retirement annuity policy, sometimes called an RA, is an effective, tax efficient way to save for retirement, provided via a long-term insurance policy. A retirement annuity policy is like having your own personal pension scheme.
You invest a monthly premium and then, when you reach a certain age prescribed by legislation, the amount saved is used to provide you with a lump sum of up to one-third of the savings amount whilst the remaining two-thirds is used to purchase a life annuity providing you with a regular monthly income for the rest of your life. Retirement annuities thus ensure that you will be better off when you retire than if you did not have one.
Investing in a retirement annuity provides the flexibility to choose your investment partners and tailor investment options with guidance from your Financial adviser. You control when and how much to invest, along with your preferred underlying investment choices.
While workplace retirement benefits often involve minimum contributions, topping them up with an RA is advisable, enhancing your retirement savings for a more substantial income in your later years.
Here are 7 reasons why an RA makes sound investment sense:
- Kick-starting your retirement savings: An RA is suitable for full-time employees, contract workers or the self-employed, serving as a standalone solution or part of a broader retirement savings plan.
- Tax benefits: A portion of the contributions is tax deductible. At present and as per current legislation, up to N$150,000 of taxable income or remuneration per year, inclusive of your contributions to other RA’s, pension funds, provident funds and education policies is tax deductible. No tax is paid on the returns in a retirement annuity.
- Versatile retirement savings: RAs offer diverse investment options, customisable to your needs and risk profile.
- Affordability: Even a modest monthly investment can significantly impact your retirement savings. Speak to an accredited Financial adviser to determine your ideal monthly contribution.
- Creditor protection: In case of insolvency, your RA is shielded from creditors, ensuring your savings remain intact for their intended purpose, namely retirement.
- Locked-in investment until age 55: Committing to a RA until retirement age ensures long-term growth. Restricting access to the investment until at least age 55, or earlier death or disability, ensures the amount invested is protected for retirement.
Tailored to your risk profile: RA investment options are aligned with your risk profile, assessed by a financial adviser considering your changing needs, lifestyle and risk appetite over time.
*Stephan Erwee is General Manager – Affluent Market at Sanlam Namibia
