Shooting oneself in the foot

We all know the meaning of the idiom "Shooting oneself in the foot."

This is exactly what the insurance industry has done to itself with old generation retirement annuities! Prohibitive initial and ongoing fees coupled with disappointing investment returns have put many people off this product. And so - to use another idiom - the baby is being thrown out with the bath water. This is a great shame for retirement annuities (RA's) have plenty of merits for any investment portfolio:

• The tax deductibility of contributions to an RA is general knowledge.
• Often not fully appreciated, however, are the following facts:
  • The tax-free status of dividends, interest and rental income during the RA's capital accumulation stage. This implies a higher return than for a comparable non-RA product which, in the long run, can have a meaningful impact on the RA's ultimate capital value!
  • RA fund credits can nowadays be invested directly in shares. As explained, the 15% dividend withholding tax does not apply in that instance. Also, the rental income from property shares accrues to the RA entirely free of tax.
  • Upon retirement the RA can be converted to a Living Annuity which - if managed prudently - can be bequeathed to the next generation. One's retirement capital can therefore function similar to a trust for one's heirs.
  • New generation RA's are just so much more efficiently priced and are just so much more transparent than the older version which incurred the collective wrath of the investing community!

Maybe it is a good time to reconsider the merits of a retirement annuity and the optimal structuring thereof within the context of one's overall investment portfolio. Contact us at Mindfulmoney® to arrange such a discussion.