3 Ways to save for your retirement as a freelancer

Being a freelancer allows you to work where you want and determine your own income, but it also comes with many responsibilities. While most employers ensure that their employees retire comfortably through a pension fund, for example, this is not the case for freelancers, who have to make a plan for themselves.

But where do you start? We sought advice from experts.

Tip: Start saving for your retirement today.

Invest in a retirement annuity

According to Allan Gray, investing your money in a retirement annuity (RA) is the best thing you can do for yourself. Retirement fund regulations limit your exposure equities, property, and offshore assets, but you can usually stop and start contributions as you wish, and without penalty.

When you invest your money in an RA, you will not be allowed to withdraw your money unless you retire or become permanently disabled. According to Allan Gray, this is advantageous as it also prevents creditors from accessing your money. Furthermore, RAs are more tax-efficient than many other investment types.

“The dividends, interest and capital gains that you earn while invested are not taxed. In addition, you can deduct your RA contributions, within limitations, from your total taxable income, and may therefore pay less tax.”

Allan Gray also points out that when you’re ready to retire, which may be anytime from age 55, you can withdraw up to a third of your investment in cash.

“The rest must be used to purchase a product that can pay you an income in retirement, such as a living annuity or a guaranteed life annuity,” the company says.

What about tax-free investments?

Tax-free investments (TFIs) are great products for long-term saving because, like RAs, your dividends, interest, and capital gains are not taxed. They are also flexible, and allow you to withdraw at will.

However, Allan Gray cautions that despite their benefits, TFIs are not sufficient for saving for your retirement. In addition, if you do decide to withdraw from your account, you may not be able to replace it.

Every time you make a deposit to a TFI, it’s considered a new contribution, which adds to the annual or lifetime limit. These limits are currently R36,000 per tax year, with a total lifetime investment of R500,000. You can have as many TFI accounts as you wish, but the total investment limit still remains.

Unit trusts are also a viable option

A unit trust is a platform that pools investments into a fund that buys and sells shares, cash, property and bonds on contributors’ behalf.

Unit trust investments offer choice, flexibility, and easier access to your savings, but lack the credit protection of RAs and the tax benefits of both RAs and TFIs.

“Investing in unit trusts for retirement requires discipline: it can be tempting to dip your hand into the cookie jar. However, you can invest as much as you want to into the asset classes of your choice,” notes Allan Gray.