Once you reach retirement, it’s time to draw on the savings you’ve been putting away over the years. If you’ve chosen a retirement annuity as the investment vehicle for your retirement savings, you’ll need to decide how to manage it in order to ensure that the funds you have are able to support you throughout your retirement years.
It’s important to have a clear idea of what you’ve saved over time and what you can expect as a monthly income.
You have the option of withdrawing one-third of your retirement annuity as a lump sum when you retire. While this can be helpful, bear in mind that it will also reduce the income you receive from your retirement annuity or retirement income solution.
You may or may not decide to make a lump-sum withdrawal from your retirement annuity, but regardless of your choice, South African law requires that two-thirds of your retirement savings be invested in an income-generating solution like a living annuity or life annuity.
Depending on which income-generating solution you choose, you may be able to adjust the amount you withdraw each year. And if you need help with your decision-making, our financial advisers will be there to guide you every step of the way.
The funds in your retirement annuity, preservation fund, pension or provident fund must be transferred into an income-generating solution when you’re ready to start using them to finance your retirement. In South Africa, you have three options available to you.
Provides you with a lifelong income that can increase every year – either by a percentage you choose or in line with inflation.
Pays your nominated beneficiary (a second life insured) an income for life after your death.
Cannot be left as an inheritance when you pass away. An exception is the Sanlam Income with Capital Preservation Plan, where an additional life cover policy pays a specified amount to your loved ones when you pass away.
Once you’ve started, you cannot make changes to the amount you receive each month or the rate at which the income increases.
Pays out remaining funds to your nominated beneficiaries when you die.
Allows you to choose the underlying investment funds and adjust your income once a year.
Provides the means to protect the purchasing power of your income – by exposing the source of your income to market returns, you have the opportunity to let it keep pace with or beat inflation.
There’s no guaranteed payout and you may run short of money if you withdraw too much.
Fluctuations in the market will affect the value of your investment, which may affect the level of income you receive.
Allows you to provide for your dependants after your death.
Provides a guaranteed income for life.
Enables you to benefit from potential income growth over the long term thanks to investment growth.
The Living Annuity income can be adjusted to counter worse-than-expected investment returns.
Our advisers are here to help you understand your needs and how you can ensure that they’re met as you head into retirement.
Investing any discretionary investments you have in an investment plan or endowment policy, together with your lump sum should you choose to withdraw it, is a good way to ensure that your savings keep growing. An investment plan gives you the freedom to choose the underlying investments and to add or withdraw funds at any stage, while an endowment policy offers you a long-term investment with additional benefits like tax efficiency and estate planning. An accredited financial adviser will be able to help you make the most of any additional retirement savings you may have.
If you need help deciding what your next steps should be, speak to a Sanlam adviser who can help you make the best choices for you and your loved ones.
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