Have you optimised your retirement funds?

2018-09-26 06:02
Paul Leonard is an Advisory Partner at Citadel, and assists clients with retirement planning.

Paul Leonard is an Advisory Partner at Citadel, and assists clients with retirement planning.

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Having your money tied up in illiquid assets could derail your retirement plans.

Entering the retirement phase without sufficient cash available may mean retirees are unable to fulfil their retirement dreams. It is important for those approaching retirement to have a clear indication of the lump sum needed to ensure they have a comfortable retirement.

To illustrate, consider the example of Dave, who is turning 60 and plans to retire in December. He and his wife want to travel throughout Southern Africa and also take a few trips overseas while they are still young and energetic enough.

Dave has a provident fund worth R7 million and he wants to take only the R500 000 tax-free portion and invest the rest into a living annuity which will pay him a monthly income.

If Dave’s R500 000 lump sum is used to buy a 4x4 and also to cover some of his travel costs, it will be depleted within four years.

This will leave him with just the money in his living annuity and the problem is that he cannot make lump sum withdrawals from a living annuity, he can only draw a regular income – an annuity. Although there is capital backing the annuity, he won’t have access to that capital again in the form of a lump sum, which could impact on his ability to fund his dream of travelling for the next 10 years.

One solution is to draw a larger lump sum. Drawing R800 000 means paying tax of R63 000 leaving him with R737 000. For R1 million after tax he must draw just less than R1,2 million. Dave must work out how much to draw as a lump sum so that after tax he has enough accessible cash to cover his travelling in the next 10 years.

If you are approaching retirement and want to know more about the choices available to you, join us for an exclusive retirement presentation on 9 October 2018, presented by Citadel Advisory Partner Paul Leonard.

Contact Paul to RSVP at paull@citadel.co.za | 041 37 37 999

Citadel Investment Services Proprietary Limited is an authorised financial services provider.

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