Self-Employed? Here’s How To Tailor Your Retirement Annuity

Plenty of self-employed individuals are turning to retirement annuities to prepare for the future. Retirement planning is a critical aspect of financial security, and for self-employed individuals like entrepreneurs and contract freelancers who lack a company provident or pension fund to fall back on, robust planning could not be more important. 

In this article, we’ll delve into some of the unique financial challenges faced by self-employed individuals and how to counteract these challenges with a 10X Retirement Annuity. We’ll also explore why retirement planning is so important for the self-employed and discuss key strategies to help you secure a comfortable future upon retirement.

A Brief Overview of Retirement Annuities 

If you are a self-employed individual (or your employer does not provide you with a pension or provident fund), retirement annuities are a great way to safeguard your future and ensure financial security in your retirement years.

A retirement annuity is an investment product that is designed to provide you with a liveable income after retirement. With a retirement annuity, you would regularly invest money and, based on the structure of the investment and the interest earned (and once you have converted the investment upon retirement as described below), you will receive income payouts in the years thereafter. 

Your provider will take your contributions and invest them in various assets such as stocks, bonds, cash, etc. – all of which make up the structure of your retirement annuity. Once you retire, you can then convert your retirement annuity into a living annuity or life (guaranteed) annuity, after which you will start to receive a regular income from the fund. 

While retirement annuities are for everyone, they are even more crucial for self-employed individuals and people whose employers don’t provide them with pension or provident funds. These individuals cannot rely on their employers and must take ownership of their retirement planning themselves. 

Challenges Faced by Self-Employed Individuals 

Whether you own your own business or work as a contract freelancer, self-employed individuals face a host of challenges when it comes to securing a safe and comfortable retirement. 

Where other individuals can rely upon their employers to set up their pension or provident funds, make payments on their behalf, and bear the burden of managing it all, the self-employed only have themselves to depend on. They are solely responsible for planning their own retirements, a concern which often winds up being avoided or overlooked until the last minute. Freelancers in particular can spend a lot of their time finding work and managing their businesses, leaving little time or headspace for retirement and pension planning. Unfortunately, it is these individuals who are most in need of a comprehensive retirement plan. 

Self-employed individuals usually receive an irregular income, and these fluctuations in earning make it tricky to invest in retirement, as many retirement investment products have stipulated monthly minimum contributions. Unlike permanent employees who get a set salary every month, and often, whose pension contributions are deducted from that salary before tax, the self-employed may have trouble committing to a set monthly investment for their retirement contributions. At 10X, this isn’t a problem, and we’re happy to give clients a break from their monthly contributions whenever they need it. 

Effectively, the self-employed must cultivate a high standard of self-discipline in lieu of employer-sponsored retirement plans. Relying on being able to sell your business or holding on to an income producing stake while someone else runs it isn’t enough – you need to have made contingency plans. This involves not only diligent saving and investment efforts, but proactive risk management to safeguard against financial uncertainties. 

Customising Contributions and Flexibility 

While the self-employed may face numerous challenges when it comes to retirement planning, 10X Investments puts secure financial futures within reach by offering both flexible contribution plans and flexible investment structures. Our retirement annuity provides our clients with varied investment options, which means you can tailor the investment structure to suit your income situation, risk tolerance, and financial goals. 

Our clients can benefit greatly from the adjustable contributions and plans we offer, especially those who are self-employed, as they will need to match their contributions to an income that often fluctuates. While we have a minimum monthly contribution of R500, there is plenty of flexibility in how contributions are applied. If you require a few months’ break, for example, you’re welcome to take it. You could also choose to contribute a lump sum upfront or at irregular intervals if this is more feasible for you. 

Our clients are always encouraged to contact us if none of the approaches we’ve outlined on our website are suitable. If this is the case for you, just let us know and our dedicated consultants will gladly come up with a customised contribution plan that works for you, your income, and your retirement goals. Whichever approach or contribution plan you choose, the benefit of flexibility is invaluable for the self-employed individual, who will have the freedom to tailor their contributions as needed and make ad-hoc payments when they are able. 

For example, a freelance graphic designer may earn just enough to survive in January, then double his earnings in February. In this case, he might want to keep his contributions to the minimum R500 in January or not contribute at all, then up his contributions significantly the next month. Luckily, at 10X we make this approach possible for all of our clients. 

If you would like a rough idea of how much you would need to contribute in order to retire comfortably, head on over to our website and make use of our Retirement Annuity Calculator to get the ball rolling. 

Investment Strategies for Self-Employed Individuals 

Here at 10X, you can always depend on us for a responsible approach to risk management, low fees, and complete transparency, all to ensure you achieve your financial goals for the future. 

• Asset allocation: Our disciplined and strategic approach to asset allocation ensures your investment is structured with the right mix of equities, real estate, bonds, and other assets. We meticulously balance your investments across assets based on your objectives and the conditions of the market in order to maximise your returns. 
• Diversification: Diversification is a key element of our investment strategy. By spreading investments across different sectors, regions, and asset types, we reduce the impact of market volatility on the fund. This helps enhance the potential for steady returns and mitigates the risk of significant losses from any single investment.
• Low Costs: We prioritise keeping our fees low to prevent the erosion of investment returns over time. Our progressive fee structure reduces costs as investment amounts increase, ensuring that more of the returns remain with the investor, thus enhancing long-term growth.

Our flagship 10X Your Future Fund is the perfect example of how we strike an ideal balance between risk and return. This fund consistently beats industry benchmarks and is structured with a broad range of both local and international asset classes, focusing mostly on growth assets such as property and equities. The 10X Your Future fund is ideal for investors aiming for long-term capital appreciation. 

For a detailed analysis of our underlying funds and their performance, take a look at our funds page. You can also make use of our cost comparison tool to see how our fees and performance stack up against your current provider (here’s a hint: 9 out of 10 people do better with 10X).

Life Stage Investment Strategies for the Self-Employed 

There are many different investment strategies that cater to different life stages, and for the self-employed, these varying life stages present unique challenges. 

Early Career (20s to 30s): Self-employed individuals in this life stage will likely face big fluctuations in earnings month to month. For entrepreneurs, starting a business will also require significant investment, leaving less available for retirement savings. For these reasons, a good strategy is potentially to start early with small retirement annuity contributions into growth-focused assets. As the old adage goes, it’s time in the market that counts the most. 

Fund example: 10X Your Future Fund 

Mid-Career Stage (40s to 50s): Self-employed individuals in this life stage might see increased financial responsibilities like mortgages, education costs, and family expenses, but will also (hopefully) have managed to ensure a level of predictability around their income. Retirement annuity and discretionary investments become absolutely essential here, and failing to have a plan is a good predictor for anxiety around retirement. In terms of investment strategy, this life stage necessitates a balanced mix of defensive assets like bonds and cash in order to reduce risk while achieving moderate or better growth. 

Fund example: 10X Moderate Fund

Pre-Retirement Stage (50s to 60s): During this life stage, the self-employed may not have the time horizon necessary to take on greater risks in their investments, and while some costs will have fallen away (e.g. school fees), they will need to cognisant of being able to meet immediate needs into the future (such as rising health care costs). Either way, this is the time to consider lower-risk investments like bonds and cash in order to safeguard savings. 

Fund example: 10X Defensive Fund

Retirement Stage (60s and beyond): For the self-employed in this age bracket, the risk of outliving savings is a significant concern. For this reason, they should prioritise investments that offer steady income with minimal risk. For more on how the 10X living annuity can offer flexibility with income and investment opportunity for this phase of life, check out our blog post.

Fund example: 10X Income Fund

Ensuring Financial Longevity 

As mentioned, upon retirement, you have the option to convert your retirement annuity into a living annuity, which then provides you with a regular income. Ensuring your financial security and the longevity of your retirement savings means making sure you have a steady income that lasts throughout your retirement. There are many strategies out there aimed at achieving this, for example setting drawdown rates that won't burn through your capital, planning for your financial future, and managing your money carefully so you don't run low on funds. In addition to ensuring your own financial security, you have the opportunity to pass on the remaining balance of your living annuity to your chosen beneficiaries after you pass away. 

The concern of outliving your savings is known as longevity risk. To manage this longevity risk, a recommended strategy is to aim to withdraw only from the growth or interest on your capital, rather than the capital itself. The key is to ensure that the sum of withdrawals (i.e. drawdowns + inflation + fees) does not exceed the investment returns, safeguarding your original investment. This helps maintain your financial stability and ensures that your resources continue to support you and your loved ones over the long term.

Why Choose 10X Investments?

With low fees, a commitment to transparency, and strong performance, our investment offerings at 10X bring our clients peace of mind and confidence in their financial futures. Take our client Sarah-Jane, for example, who first joined 10X through her corporate retirement savings fund. At 54 years young, Sarah-Jane was able to retire early and was impressed with our low fees and consistent performance. On top of that, she “really liked the people [she] dealt with at 10X.” 

In summary, retirement annuities are a crucial investment tool, particularly for self-employed individuals who lack the benefit of employer-sponsored pension and provident funds. It’s essential for these individuals to be disciplined about saving to secure their financial futures.

Here at 10X, we provide tailored solutions that cater to the unique needs of the self-employed, ensuring they can adjust their contributions and access a wide range of investment options to meet their financial goals. If this sounds like the right choice for you, we encourage you to get in touch with a 10X consultant to discuss your specific needs and develop a customised retirement plan.