Understand your Retirement Annuity and take charge of your retirement

Retirement planning is a critical financial consideration for anyone aiming for financial security later in life – so if you’ve been considering investing in a retirement annuity, now is the time to get started. A retirement annuity (RA) is an investment that allows you to allocate part of your income into a retirement fund governed by Regulation 28 of the Pension Funds Act, grow those savings at inflation-beating rates, and leverage significant tax benefits in the process. 

Your chosen retirement annuity provider will invest these contributions in a mix of assets, such as equities, bonds, property, and cash, to create a balanced portfolio. These investments are intended to grow over time, and at retirement, the accumulated funds can be converted into a living annuity or a life (guaranteed) annuity, providing regular income throughout retirement.

While many investors traditionally rely on financial advisors to manage their RAs, the fees charged by advisors can significantly eat into retirement savings over the long term. This is where 10X Investments offers a valuable alternative. With enough insight and information, and accessible tools, managing your RA directly without an advisor can become a cost-effective and rewarding strategy. By eliminating advisor fees, you retain more of your savings, enabling your funds to grow faster and work harder toward your retirement goals.

10X is here to fill you in on everything you need to know about direct investment in an RA – from asset allocation and fee considerations to the rules and regulations governing retirement annuities – so that you can take full control of your retirement savings.

A Quick Recap of Retirement Annuities

A retirement annuity can play a central role in your retirement strategy, helping you secure financial stability in your post-retirement years by converting your accumulated savings into a reliable income. It offers tax advantages and protects your savings from creditors too. The 10X Retirement Annuity solution offers the ideal combination of low fees, market-beating returns, and complete transparency so you can save towards a comfortable retirement with peace of mind.

When you contribute to an RA, your money is invested in various financial assets such as stocks, bonds, and cash. These investments are managed by your RA provider, and the goal is to keep growing your contributions as the underlying assets appreciate. One major advantage worth noting is the tax-deductible nature of RA contributions, which effectively reduce your taxable income. Additionally, any returns on your investment within the RA are tax-free, further boosting your income potential in retirement.

Another benefit of RAs is the protection they offer from creditors, making this option a reliable, secure investment for the long term. The majority of the fund is not easily accessible until you reach retirement age (55 is the minimum retirement age in South Africa), ensuring your money remains invested for its intended purpose – retirement income.

As your retirement years approach, the growth within your RA can provide a substantial fund that converts into a steady income stream. When you retire, at least two-thirds of your accumulated savings will need to be transferred into income-generating products – either a living or a life (guaranteed) annuity. The other third can be withdrawn, and you have a R550k tax-free portion within that withdrawal as well.

The 10X Investments Retirement Annuity is designed to outperform the market, backed by a track record of consistent results, low fees, and well-diversified investment portfolios aimed at reducing risk. To explore how 10X can enhance your retirement savings, you can request a free cost comparison report and see firsthand the benefits of low costs and strong performance on your future financial security.

Direct Investing With A Retirement Annuity

Ask yourself this: How much is enough for a comfortable retirement? While plenty of investors rely on financial advisors to gain a clear picture as they plan for retirement, this isn’t a necessary step. With the right knowledge, resources, and insight into personal finance and investment principles, you can empower yourself to make informed decisions while saving on advisor fees that could otherwise diminish your returns. Did you know that a 1% difference in fees can mean up to 30% less money in retirement? When seen in that light, making sure your fees are as low as possible is one of the most important things you can do for your life-after-work.

It all starts with identifying clear financial goals and evaluating your personal risk tolerance. What do you want your retirement to look like, and what will it take to reach that goal? From there, you can put together a retirement savings plan. Building a secure financial future involves practical steps like budgeting, paying off debt, and allocating a portion of your income toward retirement savings. Estimating your long-term needs will help you determine a suitable monthly savings amount, setting a clear path to meet your retirement objectives.

One way to determine the monthly contributions needed to reach your retirement goals is to make use of tools like our Retirement Annuity calculator.

Start saving early

Determining your retirement savings goal starts with your current age, which helps establish your investment time horizon. The sooner you begin, the more you can take advantage of compounding growth. When invested in the right products – like a retirement annuity with a reputable provider, regular and consistent contributions improve the likelihood of achieving strong investment returns.

The key guideline is to aim for contributions of at least 15% of your gross salary throughout a 40-year career to support a comfortable retirement. This approach allows you to benefit from tax breaks provided by SARS (up to certain limits) and helps ensure you won’t need to rely on support from family in the future.

Consider your time horizon and risk tolerance

When planning life stage investments, key factors include time horizon, risk tolerance, specific financial goals, and market conditions. Selecting a suitable underlying fund for your RA (with an appropriate asset mix) largely depends on your life stage. 

A longer time horizon can support a more growth-oriented strategy, whereas shorter horizons may put the focus on capital preservation. For retirement annuities, life stage investment models are typically structured to match your age and retirement objectives, often transitioning from more aggressive, equity-focused funds to a heavier weighting of conservative investments such as bonds and cash as you ease into retirement.

Personal risk tolerance guides asset allocation adjustments, while financial goals – your retirement income needs and lifestyle aspirations – help shape the strategy. Finally, prevailing and anticipated market conditions can also influence asset allocation at different life stages. If you’d like to learn more about it, read adapting your retirement annuity during different life stages.

Keep an eye on fees 

Many providers charge over 3% per year for a retirement annuity. Although 3% might sound insignificant in the grander scheme of your retirement, the impact of negative compounding over time is substantial, potentially reducing your retirement funds by as much as 30% over 20 years – and then factor inflation into the equation, and the results are even more alarming. On top of that, many investors aren’t even aware they’re paying such high fees in the first place. 

Keeping an eye on fees and how they impact your retirement savings is one way to ensure that you have substantial funds to carry you through retirement. You can check your total annual fees by requesting the Effective Annual Cost (EAC) from your provider. If you're paying around 3% and want to reduce fees to boost your returns, you can consider looking into other providers – like 10X Investments, which offers rates below 1% annually. You could take it a step further and use our EAC calculator to see how much you could save on fees with 10X.

When navigating direct investing in your RA, reliable tools and resources that can contribute to your plan are crucial. 10X Investments offers educational resources like webinars, blogs, and calculators so that you can make informed decisions during retirement planning and portfolio management. You can also speak to experienced investment consultants at 10X for free, allowing you to confidently oversee your financial future without relying on costly advisory services.

Managing Your Retirement Annuity: Key Points To Keep In Mind

Fees

As mentioned, fees play a crucial role in the growth of your investment. Low fees allow more of your returns to be reinvested, and overtime, compounding works in your favour. High fees, on the other hand, can significantly diminish your returns. Over time, high fees compound too, but in reverse, gradually eroding your investment value. This is why it’s important to choose an RA provider with low fees and a transparent fee structure. 

Inflation

Alongside high fees, inflation is another factor that can greatly affect the purchasing power provided by your investment returns. Inflation can be detrimental to your long-term gains and when it’s coupled with high fees, you could run the risk of falling short of your retirement goals. While inflation is unavoidable, the good news is that high fees are not. 

Making use of calculators and understanding the fees you pay to your provider go a long way when investing in a retirement annuity. By assessing various providers and their fees, implementing your knowledge of inflation and fee-related pitfalls, and choosing a provider that offers a fair and sustainable fee structure, you can set yourself up for reaching the retirement you are saving for.

Diversified Asset Allocation

Diversified asset allocation is another way you can balance out the negative effects of inflation and high fees on your retirement savings. To preserve and possibly grow your capital, strategic asset allocation should be included at the forefront of your retirement savings plan. By diversifying your investments and including offshore assets, you can be better equipped to navigate both market volatility and inflation while bolstering your savings in preparation for retirement.

Each asset class carries its own level of risk. It's usually not advisable to focus purely on high-growth, high-risk assets, nor to aim for an entirely risk-free approach – diversified asset allocation (or, in other words, a strategic mix of both) is key. This is where your time horizon and personal risk tolerance comes into play, influencing your asset allocation mix to match your goals and needs. Regularly reviewing and adjusting your asset allocation to match your shifting risk tolerance and impending retirement can help you manage market risks, stay ahead of inflation, and set you up for a comfortable transition into your golden years.

Retirement Annuity Rules And Regulations

The New Two-Pot System

The two-pot retirement system, effective from September 1st, now splits retirement savings into two parts, with an additional vested component for those who contributed before September 1st. The savings component is designed for emergencies, while the retirement component is strictly reserved for retirement – and untouchable until then.

If you previously contributed to an RA, your vested funds will be kept intact under the old rules. This means that any accumulated savings in your RA before the two-pot system was implemented remain protected and follow the original withdrawal rules, regardless of future contributions or transfers. 

Limited Early Access

Under the new two-pot system, the savings component allows for an annual withdrawal, but this reduces the amount available at retirement, and the amount withdrawn is subject to income tax. If you withdraw from your savings pot, you will also have to pay an administration fee (R300 excl. VAT) for every withdrawal you make from the savings pot. You can use our two-pot calculator to help you with your withdrawal calculations.

Retirement Annuity Exceptions

There are exceptions to the above withdrawal rules in cases of permanent disability or terminal illness. If an individual is permanently disabled, the law allows for early withdrawal of RA funds. To access these funds, however, extensive medical certification is required, along with appropriate documentation proving the individual’s disability. 

Once approved, the individual can either take a full cash withdrawal or convert the retirement annuity into an income stream through a living annuity. The tax treatment of early withdrawals depends on the reason for the withdrawal. In cases of permanent disability, tax laws are often more lenient compared to voluntary early retirement. Disability withdrawals may allow for a tax-free lump sum up to a certain limit, while the remainder is taxed progressively.

Stopping Contributions

Some RA providers allow for adjustable contributions. At 10X Investments, the minimum monthly contribution is just R500, offering substantial flexibility – and if you need to pause contributions for a few months, it’s not a problem. Alternatively, you can opt for a lump sum contribution starting at R5,000, and if neither of these options work for you, you can reach out to us directly – our consultants will be happy to chat with you to create a plan that suits your needs.

Cancellation Restrictions

Legally, RAs can’t be “cancelled” before you reach 55 years old. However, if your retirement annuity balance is below R15,000 at the time of payout, you can withdraw the full amount, effectively closing the account and receiving the funds. If your RA balance exceeds R15,000 and you no longer wish to contribute, you’ll need to wait until age 55 to access the funds. 

Transferring To A New Retirement Annuity Provider

Transferring your RA to a different provider is known as a Section 14 transfer under the Pension Funds Act, and allows you to switch providers without incurring taxes on your investment. Oftentimes, larger providers will apply exit fees when policies are cancelled. However, 10X provides a more flexible option with no penalty or exit fees, ensuring a straightforward, cost-effective transition with complete fee transparency.

Offshore Investing With A Retirement Annuity

Regulation 28 of the Pension Funds Act limits the offshore investment exposure of retirement annuities to 30%, with an additional 10% allowed in African markets outside South Africa. 10X Investments offers a range of funds within our retirement annuity that align with these restrictions, each with varying offshore allocations to suit different investment goals and levels of risk tolerance.

Retirement Annuities And Tax Considerations

Contributing to a retirement annuity offers valuable tax deductions (potentially reducing both your taxable income and tax bracket) as well as tax-deferred growth. Contributions to a retirement annuity are tax-deductible up to specified limits before retirement, and investment gains within the annuity aren’t taxed while they remain in the account, amplifying the power of compounding over time. Beyond these tax advantages, a retirement annuity ensures your savings are safeguarded from creditors, with restricted access until you reach the minimum retirement age.

Be your own financial advisor: invest With 10X

When investing in a retirement annuity, taking the time to understand and explore portfolio management techniques and the legislation around retirement, as well as using good retirement planning tools and speaking to retirement experts at 10X can help you be confident in your decisions. Securing long-term growth requires careful consideration of fees and inflation, a strategic approach to asset allocation, and plenty of patience (avoiding knee-jerk reactions to short-term market shifts is key). Taking control of your portfolio can be both rewarding and cost-effective, which is why 10X provides tools, resources, and professional consultants to facilitate your retirement savings plan.