My employer doesn’t offer a retirement fund

Many employers, especially the bigger companies, have retirement funds for their employees. Check your payslip — you’ll see how much you contribute each month. But what if you work for yourself, or your employer doesn’t offer any retirement fund options? In this case, you are responsible for saving for your retirement.

Please don’t invest in your neighbour’s cousin’s business or hide cash under your mattress and hope for the best. There’s a much better way!

A retirement annuity (RA) is a great option for tax-efficient, long-term saving — you can invest in one directly. Here’s what you need to know.

Why invest in an RA?

The tax benefits are hard to ignore. Every year, you can contribute up to 27.5% of your income, or R350,000, whichever is greater. The amount you save is deducted from your taxable income, so you pay less tax.

Also, most financial institutions that offer RA products are flexible when it comes to contributions. You can contribute monthly or do a lump-sum deposit, or a mix of both.

How do I start?

Numerous investment companies offer RAs. Old Mutual, Easy Equities, Sygnia, Nedgroup, Satrix and Allan Gray are a few examples.

Choosing a provider and a fund depends on a combination of when you want to retire (how long the money will be invested for, in other words) and your risk appetite. Read the fact sheets for the various funds to get an idea of what to expect.

You might find the choice to be overwhelming. That’s okay! It is overwhelming. Consider speaking to a financial advisor who will be able to guide you along the right path.

How much should I invest?

Read this Slice for an expert opinion on how much you should be saving for retirement.

The most daunting part is getting started. You might struggle to find money to save, especially when life seems to be getting more and more expensive. Remember, you can start with small amounts — even 1% of your salary is okay. All those contributions will add up in the long run. As you grow in your career, increase your contributions when your salary increases.

There’s a golden rule when it comes to saving: Save first and live on the remainder. Consider setting up a debit order for your RA contribution so it’s paid the day you receive your salary. That way you won’t be tempted to use the money for something else.

What happens when I retire?

You’re allowed to start withdrawing from your RA from the age of 55. You can withdraw up to one-third as a lump sum, and you have to reinvest at least two thirds in a compulsory annuity — a different fund that pays you a monthly income in your retirement years.

The money you receive from the annuity is subject to normal income tax, and cash withdrawals are subject to retirement lump-sum tax.

What if I really need the money before I retire?

You’re not allowed to withdraw from your RA before you turn 55 unless the total value is less than R15,000, if you become physically disabled, or if you have stopped contributing and ceased to be a South African resident for an uninterrupted period of more than three years.

It’s important to remember that your RA is not a general saving fund — it’s 100% focussed on giving you an income in retirement. To make sure you’re covered for everyday issues, you also need to contribute to an emergency fund, which you can access at any time without penalties.

When it comes to saving for retirement, the sooner you start, the better. Do your research or speak to a financial advisor and get your RA sorted. There’s no better feeling than knowing you have a financial safety net for later in life.