Pay Less Income Tax in Retirement

Ruvan J Grobler • September 25, 2024

The below is a basic scenario I recently worked on for a client. The individual had around R7mil in the specific Retirement Annuity and needed R55k per month after tax as income from it. One of his concerns was if he should take the 1/3 lump sum allowed or if he should reinvest his entire retirement savings in a post-retirement structure. The below looks at these two scenarios.

 

There are many complexities around structures, disallowed contributions, asset allocation and income percentages that are ignored and simplified in this example.

 

  • Scenario 1:
  • Invest full retirement savings in post-retirement product.
  • First year income: R77 000 (R924 000 annually)
  • After tax: R55 062 (R660 744 annually)
  • Monthly tax payable: R21 938

 

  • Scenario 2:
  • Take R900 000 in cash and reinvest in flexible investment.
  • Lump sum after tax: R825 300
  • Voluntary income from lumpsum : R10 000 (R120 000 annually, no income tax on withdrawal)


Retirement Lump Sum tax table:

  • First year income from 2/3 retirement portion: R60 450 (R725 400 annually)
  • After tax: R45 077 (R540 924)
  • Monthly tax payable: R15 373

 

Income: R45 077 + R10 000 = R55 077 per month

 

Difference in income tax paid in scenario 2 compared to scenario 1: R6 565 per month (R78 780 annually)

 

The real tax saving starts from year two as you also take the lump sum tax into account in year one (R78 780-R74 700). The reinvestment of the lumpsum cash does also provide you with flexibility and extra cash flow if needed. A lower income need will provide a larger income tax saving, which is probably the more important lesson to learn here.

 

A comprehensive retirement plan is extremely important and professional advice is a necessity.

 

Ruvan J Grobler RFP™ (PGDip Fin Planning)

Should you withdraw your Pension and pay off your home?

By Francois Le Clus • May 28, 2025
Should you withdraw your Pension and pay off your home? It's perfectly normal to ask whether you should use your pension to pay off your home when leaving an employer. This decision involves weighing the tax on the withdrawal, the interest saved on your bond, the future growth of your pension fund, and the contributions needed to catch up. Example: Anne is 40 years old with a pension fund worth R3,500,000. She bought a home 10 years ago for R3,000,000 and bonded it over 20 years at an 11% interest rate, with monthly repayments of R30,965. After 10 years, her outstanding bond is R2,258,225. If she withdraws her pension, she’ll receive R2,408,300 after tax—enough to settle the bond and have some cash left over. By paying off the bond early: She saves R1,467,919 in interest. She frees up R30,965 in monthly cash flow. However, if she keeps the money invested, her pension could grow to R37,921,470 by age 65 (assuming 10% annual growth). To match this value after using her pension to pay off the bond, she’d need to invest R28,580 per month for the next 25 years. That’s R2,385 less than her current bond repayment, so she does save monthly—but only for the next 10 years. After that, she’s committed to investing R28,580/month for 25 years to break even.  Not everyone’s calculation is the same and there are endless amounts of permutations to this calculation, but it’s important to note that you need to consider all of these factors when making these crucial decisions.

GEWOONTES VIR GELUKKIGE AFTREDE

By Riaan Botha • May 28, 2025
Ons ontleed watter gewoontes meewerk om ’n gelukkige aftrede te verseker. Hierdie maand bespreek ons hoe om gesond te lewe tydens aftrede. Mediese kostes verhoog hoe ouer ons word. Die koste van ’n mediese fonds verhoog jaarliks met meer as die inflasiekoers en mediese uitgawes sal in die toekoms ’n al groter persentasie van ons persoonlike uitgawes vereis. Dit is daarom belangrik om so gesond as moontlik te leef. Hier is verskillende stappe wat gevolg kan word om gesond oud te word: Eet gesond. Moenie oorgewig wees nie. Word sterker deur oefeninge te doen wat jou spiermassa behou. Doen jaarliks mediese ondersoeke om te bepaal hoe gesond jy is. Beskerm jou gewrigte en beenstruktuur deur krag- en rek-oefeninge te doen. Verminder rook en alkohol-inname om jou kanse van kanker en ander siektes te beperk. Indien jy ’n familie-geskiedenis het van siektes soos kanker en hart-toestande. moet jy vir gereelde mediese toetse gaan om vroegtydig te bepaal of jy nie die siektes onder lede het nie. Verbeter jou liggaamsbalans deur oefeninge te doen soos om op een been te staan terwyl jy jou tande borsel. Hierdeur verseker jy dat jy nie gereeld jou liggaamsbalans verloor en val nie. Studies het bewys dat dit help om jou fisieke en geestelike gesondheid te behou deur sewe tot agt ure per nag te slaap. Hou jou brein-funksie of kognitiewe vermoë in ’n goeie toestand deur brein-oefeninge te doen, soos om nuwe stokperdjies te beoefen of memoriseringsoefeninge te doen. Volg ’n aktiewe sosiale lewe. Studies het getoon dat mense met ’n aktiewe sosiale lewe minder geheue-probleme ontwikkel. Hulle het ’n verminderde kans om eensaam te voel en depressief te word (Health Connection, Cooper, University Health Care, 9 September 2024).