Mastering retirement finances: Ten essential strategies for sustainable wealth and peace of mind

Daily Maverick

a day ago

One in 10 South Africans will live to the ripe old age of 100, so if you decide to retire at 65, your savings may need to support you for another 35 years.
Over the past 35 years, we have lived through times of high inflation, low inflation, recessions, stock market booms and political shifts. While a person is working, salary increases and career growth can help to weather these challenges. In retirement, however, one's investment savings must do all the heavy lifting.
Here are 10 practical tips to help your finances go the distance.
Get specialist advice when you retire
Retirement involves major financial decisions: how much of a lump sum to take, how to structure your pension and where to invest. Each choice has tax implications and long-term consequences.
This is not the time to do it yourself. A qualified financial planner can help you structure your income to last and avoid unnecessary taxes using the correct tools and simulations.
Draw up a budget
Understanding your monthly expenses is essential in retirement. Be sure to include occasional costs like travel to visit children or for holiday getaways.
Once you have a clear picture of what you need each month, you can manage your income withdrawals more accurately. This will ensure that your investments are aligned with your lifestyle needs and structured for tax efficiency.
Understand investment timeframes and risk
Many retirees play it too safe with their investments. Although capital preservation is important, being overly conservative can erode your buying power over time. Your income needs to grow faster than inflation, fees and withdrawals.
Beware of inflation
Medical costs are among the biggest expenses in retirement and tend to rise faster than your pension. Over time, this becomes a major strain.
Consider building a separate investment or retirement annuity that's earmarked to supplement these premiums in your later retirement years.
Use annuities strategically
You can still invest in retirement annuities (RAs) after your retirement. Up to 27.5% of your taxable income can go into an RA annually, giving you a tax deduction.
Many retirees contribute to an RA in January and receive a welcome tax refund later in the year when the South African Revenue Service does their assessments.
RAs offer tax-free growth and can later supplement your income (or future medical costs). Under the two-pot system, you can even access a third of your contributions if needed — you just repay the initial tax benefit.
Consider getting critical illness cover
There is a very good chance that you will become ill with something serious during the course of your retirement. No matter how good your medical aid is, there will be additional costs that have to come out of your own pocket. These would typically be for follow-up visits, X-rays and non-chronic medication.
If you are on a tight pensioner budget, these costs can cause serious financial hardship. A solution is to take out a critical illness policy that will pay out a lump sum of money if you are diagnosed with a serious disease.
Re-examine your life cover
We typically take out life insurance to cover any debt or ensure that our families are going to be okay if the monthly salary no longer comes in. When you retire, your debt levels should be negligible and your salary will be the pension you're getting, so there's no need to insure it.
I often come across many retired people with life insurance whose premiums are increasing at an alarming rate. This is usually about 13% a year, which means the premiums double every six years. This eventually becomes unaffordable.
So, unless you are keeping the life insurance to ensure a measure of liquidity in your estate, or you want it for an inheritance for your children, you should seriously consider the merits of keeping it.
Structure offshore assets correctly
Holding offshore assets is a great way to diversify your investments by reducing the risk of having all your assets in one country. It is also nice to have access to funds when you visit any children who may live overseas.
However, you need to understand the tax and inheritance implications of these offshore assets should you die.
The combination of inheritance tax, probate and legal fees could see you losing up to half the value of these investments, not to mention the added time it will take to finalise your estate.
An approach I favour is to move these assets into an offshore structure such as an endowment or sinking fund.
The advantage is that they will not trigger offshore inheritance tax and you will not need a grant of probate for your heirs to inherit.
Manage cash flow cleverly
You can make your retirement savings last longer by ensuring the income you draw is structured correctly. Your annuity income, rental income and interest will be taxed according to the income tax tables. This is not the case with discretionary investments like unit trusts or an investment portfolio.
If you draw a regular income from these investments, the bulk of this income will be seen as a capital withdrawal and the part of the income that is attributed to growth will trigger only capital gains tax, which comes in at 40% of your normal tax rate.
Structure your ­investments with inheritance in mind
The reality is that each of us will die at some point. You need to give some thought to the way you structure any inheritance you leave behind.
First, you need to ensure that there is sufficient cash flow for your surviving spouse to live on while the estate gets wrapped up. Second, you should understand the costs involved in executing your will. For instance, if you leave assets to someone other than your spouse, estate duty and capital gains tax may become payable immediately — these costs cannot be deferred until the second spouse dies. Assets like your family home may need to be sold to pay these taxes if you do not have other liquid assets.
Retirement isn't a one-off event — it's a third of your life that requires careful financial stewardship. By making strategic decisions about investments, tax, healthcare and estate planning, you can improve both your income sustainability and peace of mind. And remember, it is never too late to fine-tune your plan. DM