September 2018: Retirement Annuities continued…
Retirement Annuities
In last month’s newsletter, we looked at the how Retirement Annuities. To read last month’s newsletter please click here. This month we look at two practical applications as to how investors can benefit by making use of retirement annuities.
The first example is for investors who are over the age of 55 and have not made use of their full R500, 000 tax-free benefit when retiring from their retirement fund savings. The second example illustrates the ability to create a lasting legacy for your children or grandchildren.
Paying less and getting more.
Let’s look at the first example:
Jane (56) is currently working, and her income for the year is R500, 000. Jane has previously retired from one of her RA’s and withdrew an amount of R150, 000 as a cash benefit. Therefore Jane still has R350, 000 that she could claim tax-free.
Jane decides to contribute R100, 000 to a new RA. This reduces Jane’s taxable income to R400, 000. Jane then decides to retire from her new RA. As the value is below R247, 500, Jane can access the entire benefit as a cash lump sum. Jane withdraws the R100, 000 and receives this benefit free of tax.
Jane has reduced her tax liability by R34, 836 and she can retire from her new RA and take the R100, 000 tax-free.
Setting up a lasting legacy for your children or grandchildren.
For investors who are wanting to provide their future generations with real wealth, an RA is a fantastic product to make use of.
Let’s have a look at the example:
Jack has a baby girl (Lucy). Jack decides to contribute R300 into a retirement annuity for Lucy. Jack invests into “Fund A” which delivers long-term returns of 10% per annum. By the time Lucy is 18 she will already have over R180, 000 saved up. Lucy gets a job and takes over the contributions from her dad. Lucy contributes R500 per month. When Lucy comes to retirement (55) she will have accumulated over R9, 500, 000.
By starting early investors can take advantage of the wonderful benefit that is compound interest! Investors can contribute from as little as R300 per month into a retirement annuity for their loved ones. Imagine if someone had started an RA for you when you were born!
Fund of the month: Prescient Income Provider Fund
The Fund of this month is the Prescient Income Provider Fund. This is a multi-asset income fund with the primary focus being on providing investors with a regular monthly income. This Fund is suitable for Investors seeking stable real returns and aiming to maximise income. This Fund targets returns of inflation (CPI) + 3 % over the long term.