One of the most commonly used instruments in retirement planning is the Retirement Annuity or “RA”. It offers a host of benefits but most commonly understood is the benefit it provides in the rebates on submission of your annual tax returns.
Even though these benefits are great, the main objective of a retirement annuity is not to provide rebates, tax efficiency or a structured salary. The main objective of the RA is to provide a disciplined approach to saving for your retirement in the form of an investment.
Due to the nature of retirement annuities being investments, a well constructed portfolio is a must.
What is meant by “well constructed”?
The money that you contribute on a once-off, annual or even monthly basis may be invested into a collection of funds which make up your portfolio. These funds such as the Allan Gray Stable Fund are themselves a collection of different assets namely stocks, property, bonds and cash. These assets are further broken down into their specific holdings like Naspers, Sasol and Woolworths.
In order to create a “well constructed” portfolio, your financial planner must use their expertise, experience with financial markets and understanding of your needs to construct a portfolio made up of a diversified collection of assets aligned to your appetite for risk. Simply allocating all of your contributions into one fund is not usually sufficient to hit the mark of the expected returns over the investment period nor does it justify the fees that you pay from your investment.
Legislation provides a guided layer of protection in the form of Regulation 28 which prescribes allocation limits to each asset class. Funds which are regularly used as part of retirement funds may be regulation 28 compliant however this does not lend itself to the portfolio being appropriately constructed.
Even though your retirement annuity may only reach maturity in several years , it’s great practice to check in on the performance of your retirement annuity and revisit it’s composition at least once every year along with your trusted financial planner.
Do you know what the underlying shares, notes and bonds are in your retirement annuity portfolio?
