* Please note that the following information does not constitute financial advice. In fact, we are forbidden to give specific advice. General information is provided with the context of your question in mind. We limit the details about you and your situation, and further detailed knowledge may affect the advice provided.
Good luck with your imminent retirement. It’s an exciting time, but I think you’re also worried about relying on your savings from your salary.
Your question is multifaceted, and I strive to cover different touchpoints. There is quite a lack of information as to whether this is within your savings. This can have a meaningful impact on the approach to conservation funds.
Let’s start at the end of your question: “I’m trying to see if there’s anything more beneficial to me besides cashing one-third and buying the rest of my pension.” If the portfolio has no other liquidity, taking a third may be beneficial and necessary. When you buy a pension, your liquidity is only income. This can only be changed once a year on the anniversary of the investment for a living pension.
If you live to age 95, retirement at age 65 can mean that your cumulative capital needs to last for 30 years. Liquidity is very important because many things can happen during this period.
In most cases, it makes sense to withdraw at least the tax exemption currently set for R500 000 if you have never made a bulk withdrawal from your retirement assets. Basically, cheap access to capital is growing duty free.
On the contrary, one of the potential benefits of holding as much as possible in a pension, especially a living pension, is that the property does not form part of your property at the time of death and does not attract executor fees. That is. Of course, this benefit is context-sensitive for both your needs and the size and scope of your property. Another advantage of the live annuity is that the growth within the investment (interest, dividends, capital growth) is tax exempt. Growing tax exempt (although the income you earn is taxable), the long-term profits of assets without real estate tax make sense.
The next element of the query deals with what to do with the lump sum from the withdrawal. Your choices are plentiful, so your advice will be specific to your situation. If you already have “emergency funding,” you should probably look not only at cash, but also at growth assets, especially those that can provide long-term benefits that outweigh inflation.
I referred to a bank account in the Channel Islands. In the current environment, you may receive near zero interest in cash. If you receive interest, it will be further reduced by income tax. If you’re looking for a cautious alternative, there are plenty of options, but some need to take on the risk factor compared to cash.
Suppose the motivation for taking a third is simply to get offshore exposure. In that case, it is important to remember that the live annuity does not comply with Rule 28 and you can invest up to 100% in foreign assets. For direct offshore investments, that is, without a live annuity, the probate and the impact on the situation should also be considered.
Third, you need to think about whether you should make a living or buy a life insurance / compulsory annuity.
Above all, the comparison table is as follows.
|Living pension||Compulsory life pension|
|Select the underlying asset (and therefore affected by market movements)||Guaranteed lifetime guaranteed income (risk borne by insurance company)|
|It will be withdrawn at 2.5% to 17.5% of the capital value and will be fixed until the next anniversary.||Income is specified at the start and does not fluctuate (income depends on market conditions and interest rate level at the start)|
|The percentage of income withdrawn may be adjusted on the anniversary of the insurance policy (once a year)||Assured has the option to increase income each year, but this choice is only available at the beginning of the policy|
|Flexibility in choosing an underlying investment||There is no choice in investing in the underlying asset|
|Income taxed at marginal tax rate||Income taxed at marginal tax rate|
|When the guaranteed life dies, the pension is passed to the designated beneficiary (various options available to the beneficiary)||When the guaranteed life dies, the insurer maintains the remaining balance. This depends on whether it is a joint policy and / or has a warranty period (up to 10 years).|
|You cannot withdraw the lump sum||You cannot withdraw the lump sum|
|Can be converted to a life pension||Cannot be converted to a living pension|
|Can be transferred to another insurance company||Cannot be transferred to another insurance company|
Again, the choice of product depends on the particular situation.
In today’s environment, compulsory annuity rates are very compelling and worth considering if you need an annual income of more than 5% of the value of your annuity. In this case, pay attention to 5%. This is because starting to withdraw more than about 5% from a living pension can begin to diminish the ability of assets to provide growing income.
In summary, it depends on the situation whether you will receive up to one-third of your cumulative retirement savings and whether you will receive a lifetime pension or a life pension. It’s important to have all the information you need at hand and take the time to make decisions.
Is making a withdrawal from my Conservation Fund the best option for me?
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