MONEY CLINIC | I'm retiring soon. Will my R2.5m investment ensure a monthly income of R10K per month?

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A Fin24 reader with plans to retire in December wants to know if her investments totalling R2.5 million will be enough to sustain a monthly income of +-R10 000 per month.

She writes:

I am retiring at the end of December 2020, and would like to know if my investments can generate a sustainable level of income of +- R10 000 per month.

I'm a 60-year-old female my townhouse and car are paid off. 

These are my investments: Provident fund - R 1.6 million; Retirement Annuity (matured) - R300K; Endowment policy (matured) - R450K; Tax-Free Savings - R110K; Unit Trust - R120K. Total - R2.5 million (matured RA and Endowment currently invested in Money Market).

Hester van der Merwe, Financial Planner and KI at Ultima Financial Planners and Financial Planner of the year 2020 responds:

Congratulations on reaching this important milestone! A simple yes or no will unfortunately not be possible in this instance. How you proceed from here is very important since it will affect the rest of your life and you will have to consider the following:

• Longevity risk:  The last thing you would wish for is to outlive your portfolio. You need to consider your current health and family history. Your portfolio may have to sustain your lifestyle for a further 35 to 40 years, since people are living longer due to remarkable developments in the medical field. 

• Goals and objectives:  How will you keep busy after retirement? What are your dreams for the future?

 Personal inflation: By how much should your income increase every year to enable you to maintain your chosen standard of living? Aspects such as your medical aid and rates and taxes may influence this to a great extent.  

 Income tax: Do you need the income of R10 000 per month before or after income tax?

• Dependents: Do you have anybody that is financially dependent on you at this stage?

• Future capital expenses: Have you considered future capital expenses, such as replacing your car or maintenance on your home?

Given the above considerations and information to hand, a cut-and-dried answer is not possible when it comes to sustainable income. 

However, you may take some guidance from the general rule that your portfolio should be able to provide you with a sustainable income of ±4%. In your case that will translate to a gross (before deduction of income tax) income of R8 600 per month. This falls as little short of your preferred income of R10 000 per month. Nevertheless, this may well change once all the information and options have been considered.

I therefore recommend that you make an appointment with your financial advisor as soon as possible. 

Good luck with your planning and happy retirement!

Questions may be edited for brevity and clarity.

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