MONEY CLINIC | I will have access to R2m soon. How can I cut my monthly expenses?

accreditation
0:00
play article
Subscribers can listen to this article

A Fin24 reader who retired seven years ago and has been living off other investments will soon gain access to a R2 million fixed deposit. He seeks the advice of an expert on how to go about cutting back on his monthly expenses.

He writes: 

I have R2 million coming out of fixed deposit soon and need to then reinvest it in something like a Living Annuity.

I am 70 and retired seven years ago and been living off my other investments...but the capital amount is shrinking and this investment will reach zero in a year or so.

We live well and have no debt except the monthly expenses which amount to about to about R15 000. This includes medical aid, insurance, townhouse levy, rates, Telkom and MultiChoice.  

I would like to reduce these expenses by getting rid of the medical aid and insurance, which comes to R4 500 pm. The medical aid is only a hospital plan, which was last used six years ago, and the insurance covers our two cars. We stay in Margate so crime is low and I am willing to take the risk and cancel these contracts and invest the money every month into a separate account and see what happens. We are not sickly BUT I am nervous to do this only because my wife will freak if I cancel them.   

Murphy's Law is that if I cancel then something will happen.  

Any advice? Thanks for addressing this issue for me. 

Hardi Swarts, director of Autus Private Clients responds: 

Dear Reader,  

You can only purchase a Living Annuity with retirement funds such as retirement annuities, pension and provident funds. This limitation exists as Living Annuities offer tax benefits in that there’s no tax on the growth of the capital within the fund. Living Annuities also don’t form part of your estate and attract estate duty.     

The choice of investment depends on the purpose of the capital. If you’d like to use the funds to generate an income, you could consider the purchase of a voluntary Life Annuity, which will provide you with a monthly income. You could also purchase unit trusts and draw down a certain amount from the investment every month.   

If the source of funds is from retirement savings, a Living Annuity is not a bad option. There are, however, certain restrictions that you need to consider, including:  

  • The loss of access to your capital
  • The loss of control of your drawdown rate. (You can only change it once a year on the anniversary date of the policy. Thus, you are locked into a fixed amount for the whole year, even though your circumstances may change. And you can only draw down between 2.5% and 17.5% of the fund.)  

A R15 000 withdrawal from a R2 million investment represents a 9% withdrawal rate, which is very high. Ideally, your drawdown rate shouldn’t be higher than 4.5%.  

Regarding your expenses, I highly recommend that you don’t cancel your medical aid and insurance.

These expenses assist in mitigating financial risk, which is essential in financial planning. There are a couple of other options you may want to consider, including:  

  • Selling one of your cars and investing the money.
  • Sourcing additional insurance quotes to lower your monthly premium
  • Replacing your DSTV subscription with Showmax or Netflix. (R1 000 compared with R150. You do, however, need a fairly fast internet line.) 

Questions may be edited for brevity and clarity.

  • Have a money problem that needs solving? Fin24 can help! Send your question to editor@fin24.com

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

Get the biggest business stories emailed to you every weekday.

Go to the Fin24 front page.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
14.35
-0.0%
Rand - Pound
19.81
-0.0%
Rand - Euro
17.08
-0.0%
Rand - Aus dollar
10.76
-0.0%
Rand - Yen
0.13
-0.0%
Gold
1,764.62
0.0%
Silver
25.81
0.0%
Palladium
2,467.49
0.0%
Platinum
1,038.50
0.0%
Brent Crude
73.51
+0.6%
Top 40
59,504
-1.5%
All Share
65,635
-1.4%
Resource 10
60,958
-1.7%
Industrial 25
87,956
-1.3%
Financial 15
12,995
-2.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Should government have assigned a majority shareholding in SAA to the private sector?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, It's a good decision
63% - 108 votes
Not a good move
11% - 19 votes
Too early to tell
26% - 45 votes
Vote