Retirement Planning

The quality of your retirement is in direct proportion to how you have planned for it. It is a very simple mathematical equation.

The rules of retirement and being retired have changed. People are living longer and are healthier than the generations before. Are you aware that 30 years ago the average retired person only lived for an average of 48 months after their retirement date? Now they are living for 24 – 30 YEARS after their retirement date!

You need to be planning your retirement vigilantly. Do you ever think about your retirement? Do you imagine yourself retired? Do you talk about your retirement? If retirement is a certainty one day have you ask yourself some questions?

    • Ask Yourself…

      • What’s my vision at retirement?
      • What will I be be doing?
      • Staying at home?
      • Entertaining friends and family?
      • Going to the theatre, restaurants and art galleries?
      • Playing golf?
      • Travelling? locally or abroad? – how often?
      • Where will your children and grandchildren be living? How often do you plan to visit them?
      • How often will you be purchasing a new car?

You need to have a rough outline of what you want to do at retirement. That way you will have an idea of how much money you will need on an annual or yearly basis. A good idea is to create a retirement spreadsheet giving you an idea of what these monthly costs would be currently.

What’s your date for retirement? – When you are planning to retire is important.


Because you need to know the number of years you have to build up your retirement savings and how long your existing savings has to grow, depends on your retirement date.

You can’t create a plan without a date, a goal or an objective.

What is your generic heritage ? How old were your parents and grandparents when they died? This gives you a good indication of what you can genetically expect for yourself. Then you need to add the “x factor” of medical science which keeps us alive longer. You need to build this “x factor” into your planning.

A quick easy step to calculate a retirement plan.

  1. Estimate the monthly income you will need at retirement –  I understand you won’t know this exactly but “guesstimate” what your planned lifestyle will cost you i.e. create a budget – be overly generous – inflation will “eat up” your spending power so be generous. Use your current expenses as a bench mark.
  2. To estimate how much savings you require – you do this easily by matching up your projected income (what you will receive from your current planning – Rental income, retirement annuities, pension funds etc. at your retirement date)- and then subtracting that figure from your total estimated expenses (you worked this out in step 1. in your “guesstimation”)
  3. Another retirement calculation is – Take your monthly expenses x 12 x 22.2 – that is the capital amount you should be aiming for at retirement.

What was your answer?

Do you have a positive or a negative amount in your calculation?  Any shortfall (or negative amount that you need for retirement) has to be made up in retirement savings.

Pre–retirement is easy. It is like doing a 1, 2, 3 step approach and if done correctly, it will ensure that you retire well. It’s about understanding that even the smallest steps, in the right direction can help you achieve great things over time. To enjoy your retirement means that you have to be financially prepared for retirement. You don’t want to be a statistic. The only way for success in anything is to prepare.

Try our retirement calculator to see how much you will need to retire comfortably.

Retirement Annuities

Always make sure that you are using a unit trust RA (retirement annuity). You can invest in many unit trust RA’s without any initial fees. Why are they a good idea? Because you are not contractually bound in any way to the company, which means that you have complete flexibility to increase and decrease contributions without paying fees or penalties that traditional insurance retirement annuities charge.

Despite legislation, there are still many investors who receive bad advice and are still being “ripped off” by paying large fees and commissions. This is partially due to the way advisors are remunerated and the fact that insurance companies continue to offer inferior and inappropriate products, specifically through life insurance companies. These insurance companies use their agents and insurance brokers to sell their products.

The main reason I don’t like traditional Retirement Annuities with Insurance Companies, is that you are contractually bound to a product.  If you know anything about contracts then you know that, if you want to make any changes to a contract, you pay the price and there are penalties to pay. I liken this to a divorce. When you marry, you sign a contract. When you get divorced, the contract is broken and there is a price to pay. This is the case with a contractual insurance product.

Considering that the average person changes their job 6 times in their working life, and that most people will experience financial constraints during their working life time, it make no sense for a client to enter a contract that is doomed to fail.

Once you either stop or reduce a contribution, you can incur up to a 30% penalty on the value of your investment. This penalty comes into effect each and every time you want to, or need to, make changes to the contract. Why would any insurance advisor put their client into a retirement annuity with a life company knowing that it is extremely unlikely that a client will be able to stick to the contract?

The alternative, and in my view, the only product to choose is a UNIT TRUST RA.

5 Reasons Why Unit Trust RA’S Are a Good Choice

  • There are no penalties.
  • There is no contract.
  • The Fee structure is completely transparent and far less than a life assurance Retirement Annuity.
  • If you stop contributing to the Retirement Annuity you can pick it up at any time.
  • You can reduce and increase your Retirement Annuity at will.

The problem with a unit trust Retirement Annuity is that there is little commission and as such most financial advisors or agents who work on a commission basis or sales targets are likely to never offer a client a choice between a traditional Retirement Annuity  with a life assurance company and a Unit Trust Retirement Annuity.

Asset Management and Retirement Planning

We have a house view on how we manage our clients’ retirement monies. We use a combination of unit trust funds,  but various different unit trusts such as ALLAN GRAY, INVESTEC, PRUDENTIAL, PSG AND REZCO funds – the funds that are selected are specifically selected according to your time horizon and YOUR retirement objective.

Retirement Annuity contributions are tax deductible. You are able to invest up to 27.5% of your total income tax fee. Not only can you invest with before-tax money, but you do not have to pay capital gains tax or income tax on your retirement investment.

Your investment growth will be higher over the long-term as the growth remains in the retirement annuity and will usually offer you a better after-tax return than other types of savings.

At retirement the minimum of 2/3rd of the capital in your Retirement Annuity must be invested into a pension-providing vehicle such as a living annuity or a guaranteed life annuity. The “transfer” to this investment vehicle is tax free.  1/3rd of your investment can be taken as a lump sum, currently the first R300 000 of this investment is tax free and the balance of this fund is taxed at your marginal rate.

How Much Can I Invest Into a Retirement Annuity In Order To Get a Full Tax Deduction?

If you are self employed or your employer does not offer a pension/provident fund your income is considered to be “non retirement funding”. You are able to contribute 27.5% of your non-retirement income into a retirement annuity and enjoy the full deduction.

If you are a member of your employer’s pension/provident fund, your income is known as “retirement funding income.”

However, you may still earn “non-retirement income” in the form of a bonus, car, entertainment allowances and commissions.

The amount you will be able to contribute towards a retirement annuity tax free is:

  • 27.5% of your non-retirement income
  • R1 750 0r
  • R3 500 less allowable pension fund contributions
  • To the maximum of R350 000 per annum
  • If you over contribute on any tax year, SARS allows you to access those funds tax free at retirement

Remember – Income earned on your investment over the time up to when you retire, is also tax free.

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