Over the past few weeks, I have discussed the financial aspects to consider before retirement. Retirement is a major life milestone and at this stage, it is important to make good financial decisions to ensure long-term security and comfort.
Below is a guide to the most important decisions you will need to make and their implications:
1. Lump sum withdrawal and tax implications
One of the first decisions at retirement is whether to take a lump sum and how much. Pension funds and retirement annuities allow you to take up to one-third of your savings as cash.
When you decide to take a lump sum, it is important to understand the tax implications. In South Africa, the first R550 000 you withdraw is tax-free over your lifetime. Anything above this is taxed as follows:
• R550 001–R770 000: R0 + 18% of the amount over R550 000
• R770 001–R1 155 000: R39 600 + 27% of the amount over R770 000
• R1 155 001 and above: R143 550 + 36% of the amount over R1 155 000
The following need to be considered when taking a lump sum:
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