WHY YOU NEED A RETIREMENT ANNUITY FUND
MAINTAINING your lifestyle in later years should be the core objective of your investment plan. However, to achieve this, you are often required to adjust your lifestyle today so that you are not forced to have to do so in the future.
Employees generally contribute to compulsory pension or provident funds through their employers. More often than not, employees know only their market value and have no idea how much income their savings will give them when they retire.
It is critical to know what income will be generated from your accumulated savings when you are no longer working.
Further to this, income must be converted into a present day equivalent, as the purchasing power of income is affected by inflation over time.
By considering your future level of income in today’s terms, you can gauge whether it will be sufficient to sustain your desired lifestyle. Should this not be the case, you will need to make additional voluntary contributions into either a retirement annuity or discretionary product such as a unit trust.
One of the most tax efficient means of saving outside of an employer pension fund is through a retirement annuity (RA). Not only is the income earned exempt from all forms of tax, but the contributions made are tax-deductible, subject to certain limits.
While the income earned from these savings is fully taxable when being drawn in later years, the benefits of tax-free capital accumulation from the re-investment of income, coupled with a likely lower marginal tax rate on retirement, makes this a highly tax efficient savings vehicle.
Contributions to an RA are flexible and it is therefore possible to contribute monthly or to invest an annual lump sum before the tax year-end in February. Consequently, it is well suited to self-employed individuals or commission earners who do not belong to a company pension or provident fund, or have a variable monthly income.
It is vital to understand that when you are investing in RAs and pension funds, you are doing so for income. The income you earn from these investments will fund your lifestyle in the future.
This income, therefore, should be reliable and predictable, which will help you to plan with more certainty. However, how does an investor ensure that his or her investments will produce this dependable income?
To assist investors in this planning process, Marriott has developed a unique online investment planning tool.
When transferring an investment into, or making a new investment in the Marriott Retirement Annuity, this tool will be able to demonstrate not only the income currently generated by that investment, but will also reflect a reasonable expectation of the monthly income generated and the capital value at the investor’s chosen future retirement date.
This is based on the principle that Marriott only invests in reliable income streams.
By knowing this information and being able to rely on it with more certainty, you will be able to adjust your lifestyle today so that your future lifestyle is not left to the whims of the stock markets or the hope of phenomenal future returns.
Lourens Coetzee is an investment professional at Marriott Asset Management.