Retirement annuity vs rental property income: What’s the best option for retirement?

Gugs Mhlungu spoke to Certified Financial Planner, Paul Roelofse.

Listen to their conversation in the audio clip below.

If you are thinking about how you're going to get by financially when you retire, Roelofse says retirement funding does not necessarily have to be a pension fund because there are all sorts of other ways that one can create a nest egg.

A retirement annuity and investing in rental property are two options that you can look into, but they both come with pros and cons.

"Both of them are in a position to give you a monthly income and I think that's the strategy, to be in a position where you can lean on that for financial independence in the future."

- Paul Roelofse, Certified Financial Planner

Roelofse explains that a rental income is a form of a pension in the sense that you can lean on it.

He adds that it will be an advantage if the property you want to rent out is paid up by the time you retire.

Rent also tends to go up every year with inflation, adds Roelofse.

He emphasises that even though you can enjoy a good passive income from the rental property, you need to have a contingency fund for things like insurance, maintenance, rates, levies and taxes.

Most importantly, says Roelofse, you need to make sure you have reliable occupancy.

With a retirement annuity, you don't have to worry about these additional costs, however, Roelofse points out that there are restrictions around the retirement annuity in that it's a compulsory fund which means it has to go into a pension for you and you can only access it according to limitations.

"It's a very careful calculation that you do... how much will I have by a certain time in the future and how much will that sustain or maintain my lifestyle thereafter. So, the size of the property or the size of the retirement annuity is very important in terms of the savings objective."

- Paul Roelofse, Certified Financial Planner

Visit Roelofse's website for more financial insights.

Scroll up to listen to the full interview.