If you’ve already retired, you may be concerned about your income options in your retirement years. Most people will have some form of pension or provident fund, which will provide you with a regular income after you retire, depending on how much you’ve invested in it.

You may also have invested independently in retirement annuities (RAs) – in addition to the retirement investment scheme mandated by your employer (or instead of a pension or provident fund, if you’re self-employed). If you wish to continue investing after you retire to boost your post-retirement income, what are the best options?

Investing and retirement

If you’re invested in an RA, you can continue contributing to it after the earliest official retirement age of 55. If you’re in formal employment and a member of your employer’s retirement fund, you’re no longer compelled to retire from that fund when you retire from employment. There are 3 popular investment options to maximise your post-retirement income.

• Defer your benefits
  You can leave your money in your employer’s fund, but you won’t be able to make further contributions to it after you retire. Your funds will be invested according to the strategy of the fund, and you will continue to be charged investment management fees and administration costs (if applicable).  

• Preservation fund
  You can transfer your retirement investments into a preservation fund. A transfer to a preservation fund is tax-free, and so is transferring a preservation fund to a retirement annuity. Under the 2-pot system, 10% of the money in your preservation fund (up to a maximum of R30,000) has been allocated to your savings pot. However, since you can’t make further contributions to a preservation fund, it will make no further contributions to your savings pot.  

• Retirement annuity
  You can transfer your investments into an RA of your choice, which will allow you to continue contributing to it. Your contributions to the fund are tax-deductible up to a certain limit and attract tax-free growth for your investments.  

Some other attractive investment options post-retirement

• Tax-free savings accounts, which allow you to invest up to R36,000 a year without paying tax on interest, dividends, or capital gains. There is currently a lifetime cap of R500,000 on the total amount that you’re allowed to invest tax-free, although the South African Revenue Service could change both the annual and the lifetime caps in the future.

• Unit trusts and exchange-traded funds (ETFs) are diversified investment options that can provide you with capital growth and income at relatively low cost. With the advice of a specialised financial adviser, you can find ETFs that match your risk profile. Retirement-age investors often find themselves trying to establish the right balance between risk and reward. More risky investments in the form of stocks can potentially generate a higher return. However, smoothing returns by including lower-risk investments in a portfolio can help you weather poor market conditions while still creating the income you need – that’s why it’s crucial to get professional advice when tailoring your investment portfolio.
  
  
• Government bonds (RSA retail savings bonds) are relatively secure investment vehicles backed by the government which offer you fixed interest rates and capital protection.
  
  
• Dividend stocks are a reliable source of income for many retirees. You can invest in well-established, profitable companies with a long history of increasing shareholder payouts. Dividend stocks that are reinvested play a major role in the long-term return on stock market investment and are popular choices for retirement savers.
  
  
• Compulsory annuities are a type of insurance product that provides you with regular payments as an investor after retirement. They can help preserve your savings by creating a steady lifetime income stream.
  
  
• High-yield savings accounts can really boost your retirement savings if you are able to put extra cash away in them every month after you’ve covered your living expenses.

Pension and provident funds

Your fund rules will determine the minimum age at which you can access preservation funds and retirement annuities. It’s usually between 60 and 65, but you’ll need to check the specific rules of your fund.

If you’re thinking about withdrawing a lump sum from your pension or provident fund to reinvest in a vehicle that allows you to diversify and potentially boost your retirement income, remember this now follows the 2-pot system: on 1 September 2024, your retirement investments were split into 2 'pots': a savings component and a vested retirement component.  Most of your existing retirement savings went into the vested component and remain invested for continued growth. 10% of your retirement investments were transferred to your savings component as seed capital, up to a maximum of R30,000. 

• For pension funds, pension preservation funds, and retirement annuities, a maximum of one-third of your vested component along with any amount left in your savings component may be taken as a lump sum at retirement. The other two-thirds must be converted to an annuity.
  
  
• For provident funds and provident preservation funds, up to 100% of the vested portion (savings before 1 March 2021) may be taken as a lump sum at retirement.  The retirement, vested component (contributions made after 1 March 2021) and savings portions follow the same one-third lump sum, two-thirds annuity rule at retirement mentioned above.

Any lump sum taken at retirement will be taxed according to the relevant retirement tax tables. Once you have retired, the fund value minus the lump sum taken will be used to buy an annuity, from which you will be able to draw a monthly income, taxable at your marginal income tax rate.

Nedbank offers a full range of retirement options tailored to your needs. Contact our experienced financial advisers for expert help in planning your retirement journey.