Managing retirement

SEVEN TIPS: PRACTICAL ASPECTS TO MAKE YOUR MONEY GO FURTHER

Steven Nathan

Start with a pen, paper and some introspection.

1. Make a plan

It should set out your goals and how you intend to fund them. Your primary goal is likely to maintain an acceptable lifestyle, covering costs. You’ll want access to funds for unexpected emergencies and capital purchases. Each objective has a different time horizon: this should instruct how you apportion and invest savings. Invest for longevity, with a long-term perspective.

2. Manage retirement fund proceeds

Pension or retirement annuity fund members can take up to a third of their proceeds as a cash lump sum (unless the fund value’s <R247 500). With the balance, they must buy an annuity. With a provident fund, the entire proceeds can be claimed as a lump sum.

No tax is charged on the first R500 000 lump sum; the balance to R700 000 is taxed 18%, the balance to R1 050 000 27% and the remainder 36%.

It makes sense to rather set this money aside as your emergency cash reserve.

The cash lump sum will reduce the amount available to purchase an annuity, so you’ll receive a lower monthly income.

3. Annuities

You can choose between a guaranteed(life) or a living annuity (LA).

In life annuities, insurers pay you a specified monthly pension throughout your life, insuring you against longevity- and investment risk. No money passes on to heirs.

LAs transfer the risk and responsibility of securing an adequate income for life to you.

You have greater investmentand income flexibility and your heirs inherit the remaining capital.

Both annuities have income, tax, estate-planning and risk implications. Use an appropriate retirement planning tool, or consult a financial advisor.

4. Manage discretionary savings

If you claim your provident fund as a lump sum, or you’ve gathered substantial non-retirement savings, think about how to manage it optimally.

Consider your time horizon. If you anticipate big near-term expenses, ‘preserve’ some money in a savings account.

If you plan to draw a regular income from these savings over 10, 20 or more years, invest the balance with long-term perspective, aiming for inflation-beating growth.

Historically, the share market has been the most reliable way to build wealth; it’ll likely sustain your required income for longer. A simple way to do this is by investing in a low-cost, balanced (multi-asset) unit trust fund.

5. Right-size your life

At retirement, adjust your lifestyle to what you can afford. There are ways to stretch savings, e.g. using a low-cost LA or investing in a growth, rather than a defensive portfolio, but there are limits.

6. Think about your estate

Draw up/update your will and nomination forms on your policies to reflect your latest intentions and circumstances.

7. Leave detailed instructions

Inform your partner about the bills you pay and how they’re paid, account details and logins, income sources, assets, liabilities and policies.

List important contact people’s details.

Steven Nathan is 10X Investments CEO