Options at retirement

Our residential property market is still struggling, with house prices having fallen by 21% in real terms since their 2007 peak, and the average monthly rental growth rate has in effect halved since 2017. The equity markets, however, have been doing well. The JSE is up 6% year to date and the S&P500 is up 10,5%. It is amazing how quickly equity markets can turn around. Anglo American is up 17% year to date and BATS is up 20%. If you compare this to cash, which has given you around 1%, you realize how important patience is in the investment world.

South Africans have long been struggling to adequately prepare for retirement and it is a well-known fact that we start too late and save too little to enjoy a financially independent retirement. One of our biggest problems is our lack of discipline. We tend to dip into our retirement savings for the wrong reasons long before retirement, thus negating the power of compound returns.

That is why investing in products like retirement annuities and pension funds are so vitally important. Legislation prevents you from accessing the funds before age 55 and even then you can access only a portion of it in cash. New legislation also requires investment houses to provide you with an information service to help you understand the different options at retirement, over and above the service you should already be receiving from your independent financial advisor. The two main options at retirement is to convert you retirement funds either into a Living Annuity from which you can draw a pension of between 2,5% and 17,5% per annum. You have full control over the funds and hence the performance of the portfolio; and any balance remaining when you die will go to your spouse or estate. Or, you can choose the second option and buy a Life Annuity. This will guarantee you a specific pension for a specific period but you have no control over the investment of the funds and no claim to any balance left when you die.

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