Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

How to optimise your retirement income?

06 July 2022 Citadel
Coert Grobbelaar, Advisory Partner at Citadel

Coert Grobbelaar, Advisory Partner at Citadel

Most people realise the importance of planning for retirement, but how many know exactly how to make their retirement plan work effectively for them?

Whether it be a retirement annuity, living annuity, or investment policy – every financial product has different benefits and restrictions. The key is knowing which product, or combination of products, to consider as part of a long-term financial plan.

We have all heard the phrase that you are never too young to start saving for retirement, but where do you start? And more importantly, how do you ensure you optimise your retirement income? We asked Citadel Advisory Partner, Coert Grobbelaar, about the fundamentals of a good retirement plan.

“Gone are the days where all savings are poured into only a pension plan or retirement annuity. This is neither tax-wise nor cashflow effective when reaching retirement. I encourage my younger clients to start contributing to both retirement products and discretionary savings as early as possible so that they have a combination of constrained and unconstrained products in their portfolios,” says Grobbelaar.


Withdrawing solely from a living annuity could mean paying more income tax in comparison with withdrawing from a combination of income streams. You are also unable to make ad hoc withdrawals from a living annuity – for example, when buying a new car or booking an overseas trip. A good long-term retirement plan will therefore include a combination of retirement and discretionary savings (your own savings which do not have the same restrictions as retirement products). This will ensure that your retirement income is designed in a tax-efficient manner, with the benefits of flexibility when you need to make ad hoc withdrawals.


When contributing towards retirement products like a retirement annuity, pension or provident fund, the full tax benefit can be used, which is 27.5% of pensionable income restricted to a maximum of R350 000 per tax year.

Upon retirement, you are allowed to withdraw one third of the value of your retirement products, with the first R500 000 withdrawal being tax-free. Unless you need more discretionary funds, it is not advisable to draw more than the allocated tax-free portion as it will result in unnecessary tax deductions. Consider moving this R500 000 to your existing discretionary (after tax) savings funds – if it is financially feasible for your personal circumstances.

The remaining retirement savings can be consolidated in a living annuity from which you can withdraw between 2.5% and 17.5% per annum, or a guaranteed annuity which will pay a specified income until your death. These income streams are subject to Income Tax as per the tax tables applicable to you. According to the current SARS tax tables, the first R141 250 of your overall taxable income per annum for the 2023 tax year is tax-free for persons over the age of 65.


Contributions towards discretionary investment products are made using after-tax funds.

These funds are accessible for any elective withdrawals before and after retirement, and most are 100% liquid. You can also make monthly withdrawals to supplement your retirement income, or the funds can be used for ad hoc expenses, unlike living annuities which do not allow for ad hoc withdrawals.

Discretionary funds from which you make withdrawals to supplement your annuity income or ad hoc withdrawals, could be subject to capital gains tax (CGT) or tax on interest earned, depending on the kind of investment, whether it be interest bearing assets, bonds, equities, unit trusts, etc.


Your retirement plan should be personalised to your age, lifestyle, assets, and financial goals. Grobbelaar says the long-term investment goal should always be to build a portfolio which can withstand volatility when the markets are under pressure, participate in upward trends and bull market runs when they occur, but remain within acceptable risk parameters, while keeping relevant tax implications in mind. If you can get that right, you should have an optimised retirement plan with the result of adding real value despite planned withdrawals.

“When planning for a successful retirement that maintains your current standard of living do not underestimate the role of a financial advisor, who will partner with you and guide you on your journey to retirement. This will result in optimised retirement income,” concludes Grobbelaar.

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