A self-employed Fin24 user who already has R2m in the kitty wants to know the best way to continue saving for retirement. He writes:
I left my former employer and placed my pension value of approximately R2m in a preservation fund. I am now self-employed.
What is the best way to continue saving for retirement?
I have always had a small retirement annuity (RA) which I still contribute to, however not close to my former employer
Daryl Coker, partner for wealth advisory services at Citadel, responds:
An RA is one of the products which can be implemented in one's portfolio to help fund retirement. There are tax advantages on the contributions and it is a forced savings vehicle which creates a disciplined approach to saving for retirement.
The disadvantage of an RA is that you are unable to access the funds you have saved until you are 55. At this point, you are allowed to take a portion as a lump sum and use the rest of the funds to purchase a monthly income.
This is a good option for a person who is not contributing to a company pension fund, but an RA is not the only option: one could take an endowment product which is also a disciplined savings vehicle. It usually runs for a period of five years before the funds can be accessed without penalty.
The endowment has no tax advantage on the contributions, but the lump sum payout at the end of the term would not be taxed in the hands of the policy holder.
Other options also include investing in retail bonds, unit trust portfolios and direct equity portfolios. These all have varying tax consequences depending on the structure.
It would be prudent to talk to an adviser who can oversee the full set of circumstances and decide which option would be best for the user.
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