Investments

A retirement policy or retirement annuity is an investment. They aren’t ‘classic’ investments such as stocks and bonds which are so often glamorized in the media, but rather a fixed investment that requires a monthly installment, which may increase over time and pays out a lump sum to you when the policy matures.

A pension plan is also a type of retirement policy except that unlike retirement annuities, a pension pays out a monthly payment. This can assist you in your day to day expenses but pensions generally don’t provide enough money per month to sustain the lifestyle you may have become accustomed to when you were working. To that end, you need a solid retirement plan and retirement annuities and pensions will probably only be part of this plan. Let’s take a look at how these will fit into your retirement plan.

Retirement Annuity: A retirement annuity, or RA, is a contract you take out with an accredited financial services provider such as Liberty Life or Sanlam where you pay the company a monthly premium towards your retirement. RA’s have received a lot of bad press in the past so it is imperative you research the company you plan on signing with very carefully. In addition, RA’s have costs involved too. These companies don’t only make money by investing your savings and gleaning the interest from those investments, they also have levies that you, the policy holder, have to pay…monthly! Your monthly premiums will usually also escalate on an annual basis to compensate for inflation so if you can barely afford the premium for this year, don’t automatically assume that next year your salary increase will cover the additional cost. Another thing to look at when considering taking out an RA is the penalties for early withdrawal. You obviously don’t want to withdraw from your policy until it has matured but life can throw unexpected curve-balls at the most well prepared person so you need to be able to rest assured that your funds will be available without having to pay crippling penalties.

Pension Plan: A pension plan is a ‘savings plan’ set up to provide people with a monthly income at the end of employment. Many companies will contribute a percentage to a pension plan, but that is not always the case. Your financial advisor will be able to assist you in setting up a budget and determining what you can afford to put in a pension plan. Remember to ask your company if they have something like that available.