Retirement Planning in South Africa: Enjoying Your Wealth and Leaving a Lasting Legacy
Retirement marks the transition from accumulating wealth to thoughtfully enjoying and strategically passing it forward. It’s about making informed decisions that shape your lifestyle, enhance your financial security, and leave a meaningful legacy.
In this guide, you’ll learn:
How your retirement savings convert into sustainable income.
Effective management of discretionary investments.
Important tax considerations in retirement.
Estate planning strategies to leave a lasting legacy.
Why partnering with a professional advisor makes all the difference.
Structuring Your Retirement Income
In South Africa, retirement savings typically convert into income through two main vehicles: Guaranteed Life Annuities and Living Annuities. Understanding your options helps you choose the best approach.
How Your Retirement Savings Convert to Income
When retiring from a Retirement Annuity (RA), pension, or provident fund, you typically have access to up to one-third of your savings as a cash lump sum. The first R550,000 withdrawn is tax-free, with the remainder taxed according to retirement lump sum tables. The remaining two-thirds must be converted into either a Guaranteed Life Annuity, a Living Annuity, or a combination of both.
A brief regulatory note: From September 2024, South Africa introduces the “two-pot” retirement system, affecting contributions after this date by splitting them into accessible ("Savings Pot") and restricted ("Retirement Pot") portions. For most individuals with substantial existing retirement savings, this new system will have minimal immediate impact.
Guaranteed Life Annuities: Stability for Life
Guaranteed Life Annuities provide fixed income payments for life, offering stability and peace of mind. Ideal for essential living expenses, these annuities offer predictability but usually lack flexibility and typically leave no inheritance to beneficiaries.
Living Annuities: Flexibility and Legacy
Living Annuities allow you control over your investment choices and withdrawal amounts (2.5%–17.5% per annum), providing flexibility as your needs evolve. Importantly, remaining funds pass directly to beneficiaries, bypassing estate duty. However, this flexibility requires disciplined management to ensure capital sustainability.
Blending Approaches
Many retirees find a blended approach optimal—using Guaranteed Life Annuities for basic expenses, complemented by Living Annuities for flexibility, growth, and estate planning.
Managing Your Discretionary Investments
Beyond compulsory retirement products, discretionary investments—including share portfolios, unit trusts, endowments, and sinking funds—play a crucial role in a comprehensive retirement strategy. These assets can be both local and offshore, offering significant diversification benefits.
Diverse Investment Solutions
Share Portfolios and Unit Trusts: Provide liquidity, growth potential, and income generation aligned with your preferences and values.
Endowments and Sinking Funds: These vehicles offer tax efficiency, targeted financial planning, and strategic growth, serving as effective solutions for specific financial objectives and legacy planning.
Local and Offshore Diversification
Combining local and offshore investments provides access to global markets, currencies, and broader asset classes, enhancing portfolio stability and growth potential while reducing geographical risks.
TRG’s role:
At TRG, we manage your discretionary investments—locally and globally—to ensure your portfolio remains diversified, tax-efficient, and aligned with your retirement and legacy goals.
Tax Efficiency in Retirement
Strategic tax planning preserves your wealth and optimises your income. Different income streams have distinct tax treatments:
Annuity Income: Taxed as regular income at your marginal tax rate.
Dividend Income: Subject to Dividend Withholding Tax (20%).
Interest Income: Tax-free allowance of R23,800 per year (R34,500 if over 65); excess taxed at your marginal rate.
Capital Gains: 40% of realised gains included in taxable income; annual exclusion of R40,000.
Endowments: Tax-efficient investments taxed internally (30% on income; 12% effective on capital gains).
Sinking Funds: Similar tax efficiencies for targeted financial planning.
Your TRG advisor proactively manages these aspects, structuring investments and income flows to optimise tax efficiency.
Estate Planning: Creating Your Legacy
Effective estate planning ensures your wealth reaches future generations smoothly, tax-efficiently, and aligned with your personal values.
Regularly Review Your Estate Structures
Regularly updating your wills, beneficiary nominations, trusts, and estate structures keeps them aligned with your family dynamics and objectives. Beneficiary nominations (especially on retirement and living annuities) simplify inheritance and reduce estate duty significantly.
Lifetime Giving – Enjoying Wealth Together
Proactive gifting during your lifetime offers meaningful benefits:
Immediate Impact: Witness the positive effects firsthand.
Financial Education: Mentor beneficiaries toward responsible wealth management.
Tax Efficiency: Use annual tax-free donations (R100,000 per donor per year) strategically to gradually reduce estate exposure.
TRG can help structure lifetime giving strategies that integrate seamlessly with your broader estate and retirement plans.
The Importance of Ongoing Reviews
Retirement planning isn't a one-time exercise. Regularly reviewing your strategy with your TRG advisor ensures alignment with your evolving circumstances, changing market conditions, and regulatory updates. This proactive approach helps keep your retirement plan effective and relevant throughout your retirement years.
Leveraging Your Professional Advisory Team
Effective retirement planning extends beyond investment advice and requires an integrated team:
Financial and Investment Advisors: Manage strategic asset allocation, discretionary and compulsory investment portfolios, and optimise retirement income.
Estate and Legal Professionals: Provide essential assistance structuring wills, trusts, and legacy plans efficiently.
At TRG, we lead or coordinate this integrated team, ensuring comprehensive management of your financial, tax, and estate planning.
Your Practical Retirement Checklist
Use this practical checklist to guide your retirement planning:
Clearly define your desired retirement lifestyle.
Optimise retirement income sources and withdrawal strategies.
Diversify discretionary investments locally and offshore.
Implement tax-efficient strategies across your portfolio.
Regularly review and update estate planning documents.
Strategically plan lifetime gifting strategies.
Openly communicate your wealth and legacy goals with your family.
Ready to Secure Your Retirement?
Your retirement should reflect your personal values, ambitions, and legacy goals. At TRG, our advisors offer tailored solutions, disciplined asset management, proactive tax planning, and comprehensive estate structuring.
Ready to take the next step?
Contact your TRG advisor today—we’d love to help you confidently achieve the retirement you envision.
