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What retirement options do the self-employed have?

By: Natasha Archary

retirement options
Image: Adobe Stock

Unlike people who are employed and have a regular income and growth, those who are self-employed or freelancers need to plan their retirement very carefully.

Rapule Mahlangu, Head of Associations & Affinity Groups at Metropolitan speaks to Kaya Biz about the options that self-employed people have.

A retirement annuity (RA) is basically a personal pension plan, so it’s a great option for people who don’t have access to retirement benefits via their employer.

The self-employed or anyone who wants to supplement their retirement savings can choose an RA and the underlying investments themselves.

“We have different types of saving vehicles, and an RA is one that you contribute towards on a monthly basis so by the time you get to retirement age, you have funds available to you.

Most RA’s are tax deductable, so at the end of the financial year, you can claim that money back from SARS.

At the end of your retirement age, that’s when they pay you an annuity.

The other option is a preservation fund, is an amount that is a lump-sum that you invest.

While the funds are in the preservation fund, the capital continues to grow tax-free. You can make one partial or full withdrawal from the fund before you reach the age of 55, and only access the balance after you turn 55.

The same rules apply as those for a pension or provident fund, depending on which vehicle you are preserving.”

You can choose the funds you want to invest within the limits set out by the retirement fund regulations.

These funds are called Regulation 28 funds.

Self-employed people can also use another reliable and tax-effective way of investing for their retirement, by making use of unit trusts.

Unit trusts don’t require annual or lifetime limits on contributions, and you have the flexibility of adding or withdrawing funds as needed.

The other option is a tax-free deposit, but this is only if you are planning on retiring within the next 5-years.

Tax-free deposits guarantees your initial capital investment and offers an agreed rate of return, and you won’t be taxed on dividends, capital gains or interest earned.

Listen to the conversation on Kaya Biz:

Also read: Legal analyst weighs in on Chief Justice Zondo’s political remarks

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