MONEY CLINIC | My sister is retiring soon. Which investment product should she invest in to cover her R8k per month living costs?

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A Fin24 reader writing on behalf of his sister wants to know what the best investment option will be to ensure a R8k payment per month from her R400k in savings. 

He writes: 

My sister will be retiring come end of January 2021. She currently has 400K that will be available to her (subject to market fluctuation at actual retirement date). Her living cost is 8K per month after taxes.

There is no other income, what investment can be looked at earn the desired monthly income if possible, and to have the capital safeguarded, during retirement?

Hester van der Merwe, financial advisor at Ultima Financial Planners, and financial planner of the year 2020 responds: 

Thank you for the question. You have not provided your sister’s age, state of health or marital status, all of which will have an influence on her financial situation. It is, however, clear from the information that she has a severe capital shortfall. If we disregard all other factors and just take some guidance from the general rule that your portfolio should be able to provide a sustainable income of ±4%, this will only yield a monthly income of ±R1 300, which is far below your sister’s preferred income. 

It is critical that your sister should understand that taking a higher income from her available capital will deplete the amount.  

She could consider applying for an Older Person’s Grant – also known as the state old-age pension. She can start the process by filling in an application form at her nearest SASSA office.

If your sister has no other option but to retire, even if she would prefer to keep working, then she may be able to claim UIF. She should discuss this with her employer, as the success of the claim will depend on the code reported by her employer at the termination of her employment. 

The human resources department will be able to furnish her with the correct form to start this process. All the best for your sister on her journey!

Compiled by Allison Jeftha. 

  • Questions may be edited for brevity and clarity.

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