Personal Finance Q&A: Where to invest my rental income

Maya Fisher-French
Maya Fisher-French

When I reach retirement age, must I invest my provident fund in an annuity or can I just build a unit trust portfolio with an asset manager and draw a yearly “salary” of not more than 4%?

Will there be tax implications?

City Press replies:

A provident fund, unlike a pension fund, allows you to take the full lump sum and you do not have to purchase an annuity. However, the tax implications are significant. You may qualify for R500 000 tax-free if you never withdrew before retirement, but the rest is taxable as per the retirement tax tables.

For example, on a R1 million withdrawal you would pay R130 000 in tax and 36% on any amount above R1 million. This means you pay more than a third of your retirement fund to the taxman. If you transfer to an annuity there is no tax payable.

Apart from the tax on the lump sum, if you do not purchase the annuity and invest the money instead, you will pay capital gains tax, dividend tax and interest income tax on your portfolio outside of an annuity.

Within an annuity structure these investment taxes do not apply, however, you pay income tax on income from the annuity. So you need to do a proper assessment before making the decision.

It may make sense to take R500 000 tax-free, if applicable, and purchase an annuity with the remaining amount.


I’m an 18-year-old looking to plan for my financial future. I have lived in poverty most of my life and as such I’ve always wanted to have financial security. I am going to university on a scholarship and will be receiving a R2 000 allowance for items that are not school-related.

I would like to know where I could start, in my limited capacity, to build my financial future and security. I’m going the chartered accountancy route and have articles and a job ready for after my studies.

What should I be doing now to secure my future and limit any black tax obligations?


It starts with making the right decision around your lifestyle choices. Do not rely on credit, as tempting as it can be. Banks and stores will all offer you credit and there will be temptation to use that credit to buy clothes and live a lifestyle that you have not been able to live until now. The truth is that consumption credit is the start of servitude, of working to pay back debt rather than create wealth.

Know that you are on the right path and that soon you will be in a position to live a better, debt-free life.

The first step is to draw up a budget to work out what expenses you need to cover with that R2 000 and try to save some of it.

Don’t worry about long-term investments right now, rather build up an emergency, short-term cash fund in a savings account with an interest rate of at least 5%. This will help you manage any unexpected expenses or family needs without taking on debt.

Longer-term investing can start when you have more cash flow so that you can put money away which you know you don’t need for at least five years.

Make these promises to yourself:

When you earn your first salary, start a long-term investment.

When you do finally complete your articles, do not buy a BMW or any other luxury car. Car repayments are an absolute wealth killer, rather buy a car you can afford while meeting your wealth creation plan.

With patience and discipline, you will be on a trajectory for financial success. Don’t let instant gratification push you off course.

Nancy writes:

I have been retired for fewer than six years and 18% of my investment capital has been wiped out. I draw 10% of my provident fund, which has only given me about 4% growth. I am considering moving to a guaranteed fund that gives me 7%.

City Press replies:

It is impossible to draw down more than 5% of your retirement money each year and hope that it will last the rest of your life.

According to the Association of Savings and Investments SA, if you draw 5% of your capital each year then your income should only start to reduce after 30 years.

If, however, you draw down 10% of your capital each year, your income will start to reduce after seven years, based on a market return of 10% after fees.

Switching to a 7% guaranteed return would not solve your problem as you would still see a reduction in your income after six years.

Your only feasible strategy is to reduce your drawdown to 5%, then your income would start to reduce in 19 years.

Unfortunately we have had poor market returns over the past four years, which has worsened the situation. In a weak market, even a 5% drawdown would start to reduce your income within 14 years. Hopefully we will see improved returns from the market.

Hlulani asks:

Would it help to pay my car off sooner by paying extra? I was told by the dealership that it doesn’t make a difference, but my dad paid off his mortgage sooner by paying extra. I opted to buy a car worth R385 550.98, financed by MFC for a 72-month period at a rate of 13.57%.

City Press replies:

With any loan, the more you pay in addition to the instalment the less total interest you will pay and the sooner the loan will be paid off. So the dealership is incorrect.

As a car is financed over a shorter period, the impact of paying more will not be as obvious as your father’s home loan, but it will still save you money.

If you use the MFC calculator on, you will see the following:

  • If you finance over 72 months, you will pay R7 905 per month. That is a total of R569 160 over the period.
  • If you finance over 60 months, you will pay R8 932 per month. That is a total of R535 920.
  • The difference between R569 160 and R535 920 is R33 240. That is the total interest you will save.

So if you put in an extra R1 027 per month you will reduce your payment period by a year and save R33 240.

Xolani writes:

Can I claim my late uncle’s Unemployment Insurance Fund (UIF) as he doesn’t have any children or wife? He was paying UIF and I’m the one who buried him. My grandmother – his mother – nominated me as his beneficiary.

City Press replies:

A death claim for UIF can only be made by the surviving spouse(s)/life partner or a dependant. It is aimed to provide support to those who were dependent on the deceased and relied on his/her income.

It is also worth noting that a spouse must apply for benefits within 18 months.

A dependant can apply for benefits if the surviving spouse/life partner has not applied within 18 months of the contributor’s death.

The surviving children have 14 days to apply after the 18-month period.

Benefits are payable to the surviving spouse(s) or life partner of a deceased contributor when an application is made.

Application must be made on a prescribed form at your nearest labour centre.

Subject to credits, benefits can be paid for a maximum of 365 days within a period of four years.

A lump sum payment will be equal to the unemployment benefits that would have been paid if the contributor were still alive.

Any dependant of the deceased who is between 21 and 25 years of age and can prove that he/she is a student may also qualify for benefits, provided that the surviving spouse/life partner did not claim within 18 months after the death of the contributor.

Contributors are allowed to nominate their beneficiaries in the case of death.

Trevor writes:

I have two flats for rental and the turnover per month is R32 000. I’m planning to invest this amount for six years. I am not happy with the interest rate I am receiving from the bank. Where else could I invest?

City Press replies:

Any investment into a market-related product should only be done if you can leave the money for at least five years. Given that the funds come from rental property, it would make sense to keep some of the money liquid in case it is needed for an emergency – a tenant may not pay or there might be a maintenance issue.

You may want to keep about three months’ worth of rental income easily available and only put away money you know you will not need for six years.

If you are investing for six years it is worth considering market-linked investments such as exchange-traded funds or unit trusts. You want to select an investment that is well diversified, in other words a fund that invests in local and offshore shares, property, bonds and cash. This reduces the risk of short-term market losses.

Investing monthly also reduces your market risk. When the market falls, you are able to buy more units or shares for the same amount; this is called rand cost averaging.

Mike asks:

I have a question regarding the R7 million tax rebate on the estate of a second spouse. Upon the death of the second spouse, does the rollover of the allowable tax rebate of R3.5 million or part thereof also apply to couples if they are married in community of property?

Elmien Pols from Private Client Trust replies:

The first R3.5 million of a person’s estate is exempt from estate duty. As there is no estate duty paid if the deceased leaves their estate to their spouse, if at the death of the first spouse the survivor is the sole beneficiary of the estate the full R3.5 million will roll over to the survivor’s estate even if they were married in community of property.

The Estate Duty Act reads that the estate of any person qualifies for the R3.5 million deduction, which becomes a total of R7 million on the second estate if the spouse did not use the abatement.

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