A retirement annuity is a great, tax-efficient way to save for your retirement, but they do come with certain rules. Many people investing in retirement annuities are not fully aware of these restrictions.
Firstly, you cannot access your retirement annuity until the age of 55, which is the earliest date you can select for retirement. You don’t necessarily have to access the funds then either. If you do not need the money, you are able to leave your money in the retirement annuity until age 75.
On retirement from the fund, only one-third of the value of the fund, less tax, can be taken as a lump sum. Two-thirds must be used to purchase an annuity income. This is to ensure that retirees have a regular income in retirement. The only exemption is when the retirement value is less than R247 000. In that case you are able to take the full amount.
You can purchase an annuity with any investment company. You are not limited to investing with the same company that you had your retirement annuity with.
You also need to get good advice about whether to purchase a guaranteed annuity or whether to invest in a living annuity. A guaranteed annuity will pay you a set income for the rest of your life, but the income dies with you.
A living annuity is where you are invested in a fund and can select how much you draw down each year. You can draw down between 2.5% and 17.5% of the capital each year. If you die, any capital is paid to your beneficiaries. But if the money runs out before you do, there is no more income, which could leave you financially destitute.
Your retirement fund is one of your biggest financial assets, so inform yourself.