Retirement – is it still possible?

Connie Bruwer from PC Bruwer and Partners advises about Retirement Planning

Question:  Many people on the eve of retirement have the anxious question of whether or not they will now be able to retire, given the negative market conditions. What is your answer to this question, Connie?

Connie:  The answer to this question holds no relation to the movement of markets over the past year. It is mainly determined by the savings pattern in your work life, and secondly by the standard of living you want to maintain after retirement.

Therefore retirement planning plays an important role.

Mr. Kobus Sadie of Verso Investment Services says that a cash flow model can give a clear indication of whether a person can retire and with what ease they will be able to live in the future.

Question:  What can overthrow initial retirement planning?

Connie:  A sudden change in working conditions leading to early retirement may upset your initial planning. For example, an individual who I know well, and is only 57 years old, has to retire early after 20 years of service. The value of his defined contribution due to the decline in the market has shrunk with several hundred thousand rand and suddenly the plan for early retirement, does not seem so beneficial anymore.

Mr. Johan Strydom, wealth planner at Citadel, says one does not need to determine the timing of retirement in terms of the state of the markets. Any annuity that he now buys, he buys at the same level as when he withdraws his pension money in the markets. The most important thing is to draw up a proper framework within which future investment decisions can be taken.

Question:  What important questions should people in this position be asking?

Connie:  Important questions that people should ask in this position is if they should withdraw their cash and, if so, it is wise to invest in something like real estate?

It should also be borne in mind that people live much longer than in the olden days. Given the longer life expectancy, one should ask the question – is it still possible to retire at 57 years? If one can earn another income after retirement, one can also put your pension money in a conservation fund.

Question:  When one does retirement planning, what must be provided for?

Connie:  In planning for retirement, provision must be made for an emergency fund and other capital expenditures (such as the purchase of cars) during retirement.

Should two-thirds of the pension money be invested in a life annuity, the withdrawals are limited to between 2.5% and 17.5% per year and the income is fully taxable.

The drawings provide the income. Ad hoc withdrawals cannot be done. If a third of the money is withdrawn at retirement, one will also have to provide for these needs, and it may not be advisable to tie it in any investment, including real estate.

In addition, the amount drawn in cash, will be taxable. The first R550 000 is tax-free, with the next R220 000 taxable at 18%. The next R385 000 is taxed at 27% and the remainder will be taxed at 36%.

The money that one will taken in cash, can help to keep the withdrawal of the life annuity as low as possible until a suitable retirement age and will also keep income taxes to a minimum.