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Retirement Planning
Sunday, January 1, 1989
Old tricks

The subject of retirement is often one to be avoided by most people throughout their youth. But slowly the inevitable creeps up and before we know it most of us are having to face the most testing time of our lives.
One of the major factors contributing to the worry surrounding retirement is that, sadly, many of us are not financially prepared for it. Often the subject of retirement is put off for yet another day. By the age of 60, however, the crucial moment is already on the horizon and it’s too late to effect any sort of solution... Or is it?
According to Roger Spiers of Fedlife, “not by a long shot.” It is never too late to prepare for that crucial time in life when a person can either no longer work or is not prepared to and prefers to retire. The easy solution is to open a retirement annuity after retirement - an option seldom appreciated by the public.
Retirement annuities are individual pension funds which are mobile. At maturity, one third of the lump sum may be paid out to the policyholder. The balance is used to purchase an annuity contract which will then provide an income over a predetermined period, which may he for life or a minimum of 10 years, or may be a joint contract paid as long as one of the partners survives. Many people believe that retirement annuities can’t be bought after a person has reached the age of 60 but this is not the case.
Says Mr Spiers, “There is no legal minimum age for taking out a retirement annuity. They may be effected at any age.”
People usually take out a retirement annuity to mature at age 55, the legal minimum age, to enable the allowable tax benefits to accrue. But the operative word is “minimum”. The Income Tax Act says that a person may not take benefits after he reaches the age of 70 years. So even where a person plans to retire at 65 he could still enter a retirement annuity contract at, say, age 60 for maturity at 70. The advantage of this, Mr Spiers goes on to say, is that it saves the policyholder tax, especially important for those at the top marginal rates of tax. “If you were contributing R1 000 per month and paying 45°% tax, it would effectively mean you would be paying out only R550 per month.”
Although it is entirely possible to take out a retirement annuity in your 60’s, the life assurance industry, naturally, does not recommend waiting until so late in life. Meanwhile, assurers stress the younger you take out a policy the better. Even a delay of only one year can make a drastic difference to your retirement earnings. For example, if at 25 you invest R50 per month for 30 years you could effectively come out with R256 000. But if you delayed the process by one year the projected fund could be R222 000 - a difference of R34 000.

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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