As the 2024 tax year comes to a close, South Africans have an opportunity to improve their financial well-being by considering strategic investment options. One advantageous avenue is investing in a Retirement Annuity (RA). In this article, we will explore the benefits that make Retirement Annuities a smart choice for long-term financial planning.

  1. Tax Efficiency

Investing in a Retirement Annuity serves as a tax planning strategy. Contributions made to an RA are eligible for tax deductions, up to certain limits, allowing individuals to immediately reduce their income tax payable to SARS. Essentially, investing in an RA helps lower the portion of your income subject to taxation.

  1. Long Term Growth of Savings

Retirement Annuities are specifically designed to accumulate wealth over the long-term. The contributions made towards an RA have the potential to grow over time through compounding returns. Furthermore, this growth is shielded from capital gains – and income tax, offering a tax-friendly environment for building retirement savings.

  1. Creditor Protection

In situations involving financial difficulties, funds invested in a Retirement Annuity typically receive protection, from creditors. This adds a layer of protection guaranteeing that the savings designated for retirement stay secure and shielded from claims.

  1. Post-retirement tax savings

Disallowed contributions (amounts paid in excess of the tax-deductible limits) into RA’s can be used to offset the tax payable on future income payments from living annuities during retirement. This can reduce or in some cases even neutralise the amount of tax paid on your living annuity income payments.

  1. Safeguarding Capital

Retirement Annuities have restrictions on when and how you can withdraw funds from them which reinforces a disciplined approach to saving for retirement. These limitations prevent withdrawals before retirement and therefore encourage individuals to preserve their investment capital for its intended purpose, thus ensuring financial security in retirement.

  1. Flexible Contribution Choices

Retirement Annuities offer flexibility in terms of contribution amounts. Individuals can customize their contributions based on their capacity allowing for adjustments as circumstances change. This adaptability makes it accessible to a range of investors with varying income levels.

  1. Financial Stability, during Retirement

The objective of a Retirement Annuity is to provide an income stream throughout retirement. By consistently and strategically contributing during ones working years, individuals can build a fund that aids in protecting one’s standard of living during your retirement years.

  1. Varied Investment Opportunities

Retirement Annuities present a variety of investment options enabling individuals to choose strategies that align with their risk tolerance and financial goals. This diversification helps maximize returns and effectively manages risk.

  1. Estate Planning Advantages

When it comes to estate planning, investing in a Retirement Annuity can bring further benefits. One key advantage is that the funds held within a Retirement Annuity are excluded from your estate. Careful use of RA’s can result in valuable estate duty (20% on first R30 Million, 25% above R30 Million) savings, and will also avoid some of the other costs associated with the winding up of your estate. This will also add to increased liquidity of these assets as your beneficiaries would not have to wait for your estate to be wound up before receiving the benefit you have pledged to them.

To summarise, choosing to invest in a Retirement Annuity is a decision that offers numerous benefits. By taking advantage of tax efficiency, ensuring long term growth of your savings, and benefiting from the flexibility and protection provided by Retirement Annuities, you’re actively preparing for retirement.

Its recommended that you consult with your advisor at JBL Wealth Management to customize an RA strategy that suits your circumstances and financial goals. Please keep in mind that, for ad-hoc lump sum RA investments, time is limited. To ensure completion before the end of the tax year (29 February) aim to have all documents and fund transfers finalised by 20 February.


Charles Jorgensen CFP

JBL Wealth Management