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I am retiring in the next 12 months
What should I do?

 

Wouter Fourie I am retiring in the next 12 months What should I do 22Jan2025

By  Wouter Fourie
CEO of Ascor® Independent Wealth Managers and co-author of The Ultimate guide to Retirement in South Africa

 

Retirement is an exciting yet complex life transition. If you’re planning to retire within the next 12 months, proper preparation is essential to ensure a smooth and secure shift into this new phase.

Key steps and practical advice to help you navigate the process effectively.

 

In South Africa, the process involves careful planning to comply with tax laws, maximise your pension benefits, and safeguard your financial future.

This article outlines key steps and practical advice to help you navigate the process effectively.

 

  1. Assess your financial readiness

Begin by taking stock of your financial situation. Consider the following:

  • Retirement savings: Review the value of your pension or provident funds, retirement annuities, and any preservation funds.

  • Other income sources: Identify additional income streams, such as investments, rental properties, or part-time work opportunities.

  • Budgeting: Develop a retirement budget that accounts for your monthly living expenses, healthcare costs, and leisure activities.

Why this matters: Knowing where you stand financially helps you plan realistically for your retirement lifestyle and avoid unexpected shortfalls.

 

  1. Understand your pension fund options

South African retirement fund rules allow you to access your savings, but it’s essential to understand your options:

  • Lump sum withdrawals: You may withdraw up to one-third of your retirement savings as a lump sum. The tax-free portion of a lump sum is R550 000, with amounts above this taxed on a sliding scale.

  • Annuities: The remaining two-thirds must be used to purchase an annuity, which provides a regular income during retirement. You can choose between:

  • Life annuities:Guarantee a steady income for life.

  • Living annuities:Offer flexibility in withdrawals and investment strategies but carry the risk of depleting your funds.

  • Hybrid annuities:This is a combination between a life and a living annuity.

Action step: Review your fund rules carefully and choose the most suitable withdrawal and annuity options based on your financial needs and risk tolerance. This decision is critical and requires careful consideration. It is advisable to consult an independent certified financial planner to help you make a well-informed choice.

 

  1. Evaluate your tax obligations

Retirement income and withdrawals are subject to tax. It’s important to:

  • Understand how your lump-sum withdrawals will be taxed. Only the first R550 000 is tax-free, with additional amounts taxed according to the retirement lump-sum tax table.

  • Factor in tax on income from annuities, which will be added to your overall taxable income.

Tip: Effective tax planning can substantially influence your retirement income. It is advisable to consult with a professional, such as a certified financial planner who is also a registered tax practitioner, to identify strategies for minimising your tax liabilities.

 

  1. Revisit your estate plan

Retirement is the perfect time to ensure your estate planning is up to date. Consider:

  • Updating your will: Reflect any changes in your wishes or family circumstances.

  • Beneficiary nominations: Confirm that your beneficiaries on pension funds, life insurance, and investments are correctly listed.

  • Estate duty planning: Work to minimise estate duty and executor fees by structuring your assets effectively.

Why this matters: A clear and current estate plan ensures your assets are distributed as intended and minimises potential complications for your loved ones.

 

  1. Plan for healthcare costs

Healthcare is one of the largest and most unpredictable expenses in retirement. To prepare:

  • Maintain or upgrade your medical aid: Ensure you have adequate cover to handle rising healthcare costs.

  • Consider gap cover: Bridge the shortfall between your medical aid payouts and actual treatment costs.

  • Budget for long-term care: Plan for potential age-related care needs, such as home nursing or assisted living.

Proactive planning in this area can save you significant financial stress.

 

  1. Think about life after work

Retirement isn’t just a financial shift; it’s a lifestyle change. Ask yourself:

  • What will your day-to-day activities look like?

  • Do you want to pursue hobbies, travel, or volunteer?

  • Would part-time work or consulting keep you active and engaged?

Having a clear vision for your retirement lifestyle will help you find fulfilment and purpose beyond work.

 

  1. Use an independent certified financial planner

To make the most of your retirement and navigate the complexities of tax, pension funds, and investment decisions, it’s crucial to work with a qualified, independent, certified financial planner (CFP). Preferably, choose someone who specialises in retirement planning and is also a registered tax practitioner. Here’s why this matters:

  • Tailored advice: An experienced CFP will help you design a financial strategy that aligns with your unique circumstances and goals.

  • Tax efficiency: A CFP who is also a tax practitioner can optimise your withdrawals and income streams to minimise your tax liability.

  • Investment guidance: They can assist you in choosing the right annuity and managing your investments to ensure your funds last throughout retirement.

  • Unbiased recommendations: Independent CFPs are not tied to specific financial products, ensuring their advice is in your best interest.

 

Action step: Verify that your financial planner is registered with the Financial Sector Conduct Authority (FSCA) and experienced in retirement planning to ensure they are qualified to guide you effectively.

Key milestones and timeline

To help you stay on track, here’s a suggested timeline for the 12 months leading up to your retirement:

  • 12 months before retirement: Assess your financial readiness and review pension fund options.

  • Nine to six months before retirement: Update your estate plan, confirm beneficiaries, and consult a tax advisor or CFP.

  • Six to three months before retirement: Decide on your lump sum and annuity choices and finalise your retirement budget.

  • Final three months: Notify your employer, complete all necessary paperwork, and plan your post-retirement activities.

 

Need more detailed information?

For a comprehensive guide to planning your retirement, consider purchasing the bestselling book The Ultimate Guide to Retirement in South Africa, now in its third edition. This book provides in-depth information, step-by-step guidance, and practical tips tailored to South Africans preparing for retirement.

For more information on how to purchase the book, visit www.retirementplanning.co.za

 

Conclusion

Retirement is an exciting new phase that requires careful planning to ensure financial stability and peace of mind. By taking the right steps in the 12 months before retiring – assessing your finances, understanding your tax and pension fund options, and working with experienced CFP professionals – you can transition smoothly into this next chapter of life.

Proper preparation today will help you enjoy a fulfilling and worry-free retirement tomorrow.

 

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This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/i-am-retiring-in-the-next-12-months-what-should-i-do/

 

Contact Ascor®Independent Wealth Managers for retirement planning advice.

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