Secure your future: Put your tax refund into a retirement annuity – Personal Finance

Now that the tax year has come to an end, many people are anticipating large tax refunds. Instead of hastily splurging on non-essential items, especially in an uncertain economic climate with volatile markets, consider investing along with other bonuses or cash incentives in a retirement annuity.

A widespread lack of savings discipline persists in South Africa, posing challenges for both individuals and the broader economy. Taking into account this weak savings culture, investing in retirement annuities emerges as a strategic option. These vehicles offer important advantages for long-term financial planning, including tax efficiency and the potential for substantial growth.

Tax deductibility: Contributions to retirement annuities are tax deductible, with limits set at R350,000 or 27.5% of remuneration or taxable income, whichever is greater. Excess contributions can be carried forward, providing additional tax benefits in later years.

Tax-free investment returns: Investment returns within retirement annuities are tax-free, including dividends, interest and capital gains, providing a favorable environment for wealth accumulation.

Tax-free transfers: When changing employers, funds accumulated within employer-based retirement plans can be transferred tax-free to a retirement annuity, preserving tax benefits and allowing for continued growth through investment returns.

Retirement income: At age 55, retirement annuity holders can access one-third of their savings in cash, with the remainder providing them with a regular income stream. While cash withdrawals may incur taxes, the remaining funds offer a reliable source of retirement income.

Investment growth: Retirement annuity funds are actively invested to facilitate accelerated growth, which typically outpaces traditional savings vehicles. Investors can have access to a variety of investment options tailored to their risk tolerance and financial goals.

Creditor protection: Retirement annuity funds are protected from creditors under section 37B of the Pension Funds Act, ensuring asset protection even in the event of financial difficulties.

Flexibility: Retirement annuities offer flexibility in contribution levels, allowing adjustments to be made to adapt to changing financial circumstances. Contributions can be increased, decreased, or suspended as needed, while existing funds continue to grow.

Security: By automating contributions through debit orders, people can secure their retirement savings until age 55 or beyond, giving them peace of mind and long-term financial stability.

Estate planning: Retirement annuity funds bypass the probate process, providing quick access to beneficiaries and ensuring timely financial support during difficult times.

Cost efficiency: With minimum contributions ranging from R500 to R1 000 per month or annual lump sums ranging from R10 000 to R50 000, retirement annuities offer a cost-effective means of building retirement savings.

Consult with a financial advisor who can provide guidance on how to maximize the benefits of retirement annuities and achieve long-term financial security. – MESS

* De Witt is head of financial planning at financial advisory firm NMG Benefits.