Contemplating the financial implications of retirement is one of the most important issues in life. With this in mind, Gary Fisher, certified financial planner and Head of Member Education Services at Alexander Forbes, has noted some of the most important financial decisions required as you embark on the next chapter of your life:
1. What financial options do I have when I reach retirement age as stipulated by my employer?
You no longer have to retire from your retirement fund when you retire from the service of your employer and start earning a pension immediately, you may elect to retire from the fund after normal retirement age as set out in your fund’s rules. This means that you will retire from your employer at your normal retirement age, but you can keep your retirement savings invested in the employer’s fund until you choose to receive the money that you have invested during your working lifetime.
You can elect to defer your benefit in your current employer’s fund on retirement but you won’t be able to make any further contributions to the fund. This is what you should consider when deferring your benefit:
Decide on the date you want to collect your retirement savings from the fund.
You won’t be covered for the funds insured benefits.
Your retirement savings will stay invested in the fund and you will remain invested in the investment portfolio you were invested in at retirement date.
You will continue to have the same range of investment choice.
There will still be investment fees and administration costs.
Positive and negative investment returns will be added to, or deducted from your investment in the fund until your deferral date.
Should you choose to defer outside of the fund by making use of personal retirement annuities, then you can also elect to make additional contributions. This will allow you to build on the savings already accumulated.
2. What type of fund do you belong too?
Find out what type of fund you belong to, as this has an impact on how much cash you are allowed to take when you elect to retire. Any cash taken from a retirement fund is subject to income tax.
If you belong to a Provident fund, the following options are available to you:
You can use all your money to buy a pension.
You can use some of your fund credit as cash and use the balance to buy a pension.
You can take your full fund credit as cash
If you belong to a Pension fund or a Retirement annuity fund: