Retirement isn't the finish line

FROM NEST EGG TO PAYCHEQUE: HOW TO MAKE INFORMED CHOICES AND HERE ARE THE OPTIONS

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When working people reach retirement age, they should have saved enough money to live off their savings but it is also important that they understand how that money will generate an income as there are different types of annuity products to choose from and with some, once you made a choice, it cannot be undone.

Therefore, it is necessary to think about your choice properly, says Kamal Patel, senior financial advisor at Old Mutual Personal Finance.

"People entering retirement must thoroughly understand their annuity options and the best way to do this is with the help of a financial advisor," says Patel.

"What you choose will depend on a number of factors and the most important are how much you saved, how long you expect to live in retirement, how comfortable you are with investment risk and whether you would like to leave capital for your loved ones."

Patel says certain rules apply regarding savings in a retirement fund, such as a pension fund, provident fund, preservation fund, or retirement annuity.

"If your fund value is more than R247 500, you are allowed to only withdraw one-third as cash, of which the first R550 000 is tax-free. You must use the remaining two-thirds to buy an annuity, which will provide a monthly income subject to tax for you."

Patel says there are two basic types of annuities, although providers offer variations on each.