Investing my pension

I’ll have R7.2 million in a pension fund when I retire in April 2019 at 60. How do I invest these funds to realise a R38 000 monthly income? The answer below isn’t meant as advice. I’d encourage you to engage with an experienced and skilled certified financial planner, who’ll be able to coach and guide you through post-retirement planning.

There are factors to consider when determining how/where to invest funds, which are unknown at present, including your current personal and financial situation, your objective and level of education and product experience, taxation, your risk tolerance/profile, inflation, costs and fees, and estate planning.

You can use a living annuity; a compulsory annuity, where you can draw an income as follows:

monthly, quarterly, annually; not less than 2.5% and 17.5% per annum;

income drawdown may be reviewed annually up or down.

The income you require equates to approximately 6.5% of your capital. The table illustrates the income drawdown, investment return and the effects of these in years on the income you draw.

Note the table assumes the income drawdown rate is adjusted over time for 6% yearly inflation. Once the number of years in the table has been reached, your income will diminish rapidly afterwards.

Analysing your risk tolerance and risk profile will assist in determining the investment strategy; the strategy will guide the financial planner as to the funds to select and use within the investment. You and the planner must assess your tolerance to risk, the risks associated to meet your required return to provide the income, and increasing with inflation for the term required.

It’s important to structure the annuity so the income drawdown percentage portion of the annuity doesn’t exceed the actual portfolio return. – Moneyweb