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Retirement annuity

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fressa
Regular Contributor
Hi all Im hoping someone can advise on how to invest in a retirement annuity, as well as touch on the benefits of retirement annuity vs investing in equities. Questions: Do I need to use a broker to invest in a RA? I understand that depending on the product one invests in (life or unit trust) there is a monthly or upfront broker commission involved. Assuming I can invest without a broker would I save on this commission? I understand that there is a significant tax benefit to a RA but also understand that funds can not be withdrawn without a penalty before the age of 55 unless I immigrate. Are there any other benefits/limitations I should be aware of? Assuming I do invest in an RA, should all of my disposable income go into this or is it better to split this into RA and equities? Thanks in advance.
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17 REPLIES 17
Blik
Super Contributor
Tax benefit is only 15% of your gross salary into an RA - unless much mistaken. So no point in doing more than 15% IMHO. I use a broker for my RA, who deducts a monthly commission. I invest less than 15% and if I feel the need, and or have the cash, I can do a top-up towards the end of the year. Much discussion in our office about the pros and cons. Some for, some against.

Oh one other thing - no one can touch your RA in any claim. so your disgruntled wife, or husband you are divorcing canna touch it.
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SimonPB
Valued Contributor
forget broker, go direct for way way cheaper .. big firms rip you on coosts and performace .. 10x, etfsa has a ra or signia
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klapka
Super Contributor
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RM2
Regular Visitor
Hi Blik, not to be a stickler, however the contribution is limited to 15% of non retirement income ie commission, travel allowance, bonus as apposed to salary which is used to contribute to pension.
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Blik
Super Contributor
Nothing bad about being a stickler....especially when retirement advice is concerned.
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partridge
Super Contributor
Blik is completely wrong about divorce. It amazes me that in these discussions the first consideration is about cost. That is only one of the considerations - after Step 1 - ask where this product fits into your retirement provision - 'cos that is what it is for. Step 2 - get a plan around that and contribute appropriately. ps THAT is what you pay an adviser (if you have one) for - not some rubbish form filling exercise and a monthly charge THEREAFTER( for what??). The whole basis for deductions is changing this coming year.
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Blik
Super Contributor
Flip - I need to grill my advisor then....eish. Good job my RA is tiny! Gracias for correction....I'll keep my mouth shut now!
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fressa
Regular Contributor
Hi All i really appreciate the input. Is a RA really important assuming I am a prudent saver, my understanding is that people see it as a benefit because they cant touch it before 55 so its a forced savings? also, assuming i am getting more than a 15% return on my money in the market, is there value in channeling that into an RA?
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fressa
Regular Contributor
Hi All i really appreciate the input. My understanding is that people see an RA as a benefit because they cant touch it before 55 so its a forced savings. Assuming I am a prudent saver is an RA really important? Also, assuming i am getting more than a 15% return on my money in the market, is there value in channeling that into an RA?
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Not applicable
wrong about divorce - they can touch it.
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shares
Contributor
Hi Fressa I'd say the biggest benefit of an RA is the fact that tax is deferred. If your marginal tax rate is 30% or 40% then effectively you contribute 70% or 60% respectively and SARS contributes the rest. You will be taxed on the withdrawals but in the mean time you should have benefited from compounded growth. Note that the tax benefit is capped at of 15% of your "non-retirement funding income". If you're already saving for a pension against say your basic salary then you can only benefit on 15% of the remainder of the your income e.g. from a bonus, commission, overtime, standby, etc. There is a lot more to it than what I've written but that is the gist of it. Here's a recent article that seems to do a decent job of explaining it: http://www.iol.co.za/business/personal-finance/retirement/annuities/ra-top-ups-get-the-balance-right...
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shares
Contributor
Hi Fressa I'd say the biggest benefit of an RA is the fact that tax is deferred. If your marginal tax rate is 30% or 40% then effectively you contribute 70% or 60% respectively and SARS contributes the rest. You will be taxed on the withdrawals but in the mean time you should have benefited from compounded growth. Note that the tax benefit is capped at of 15% of your "non-retirement funding income". If you're already saving for a pension against say your basic salary then you can only benefit on 15% of the remainder of the your income e.g. from a bonus, commission, overtime, standby, etc. There is a lot more to it than what I've written but that is the gist of it. Here's a recent article that seems to do a decent job of explaining it: http://www.iol.co.za/business/personal-finance/retirement/annuities/ra-top-ups-get-the-balance-right...
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shares
Contributor
Hi Fressa I'd say the biggest benefit of an RA is the fact that tax is deferred. If your marginal tax rate is 30% or 40% then effectively you contribute 70% or 60% respectively and SARS contributes the rest. You will be taxed on the withdrawals but in the mean time you should have benefited from compounded growth. Note that the tax benefit is capped at of 15% of your "non-retirement funding income". If you're already saving for a pension against say your basic salary then you can only benefit on 15% of the remainder of the your income e.g. from a bonus, commission, overtime, standby, etc. There is a lot more to it than what I've written but that is the gist of it. Here's a recent article that seems to do a decent job of explaining it: http://www.iol.co.za/business/personal-finance/retirement/annuities/ra-top-ups-get-the-balance-right...
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klapka
Super Contributor
That 15% is rising to 27% next year. The R310000 odd tax free sum at retirement is going up to R500000. Another benefit is the fund growth is not taxed at the same rate as funds in other investments.
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fressa
Regular Contributor
Thanks guys from what i am hearing, an RA is a must have and a no brainer given the tax break. Thanks so much
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Hawk
Contributor
Klapka, where did you read the part about the "15% is rising to 27% next year"? Will that only come into effect March 2015?
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