MONEY RETIREMENT

THE GOOSE THAT LAID THE GOLDEN EGGS

1. HOW THE NUMBERS WORK

4 NUMBERS IN THE FORMULA

Income Lifespan % R

R Income Lifespan %

yearcapitalgrowthAnnual icome shortfall/ surplus inflation6% growth10% Pg 16

INCOME TARGET TABLE INFLATION +4% RETURN Male Female Age Life Expectancy Yrs Mnths % Of Capital as Income Monthly Income per R1'000'000 Age Life Expectancy Yrs Mnths % Of Capital as Income Monthly Income per R1'000' %4, %4, %5, %4, %5, %5, %6, %5, %7, %6, %9, %7, %11, %9, %14, %12,207 INCOME TARGET TABLES

2. LIFESTYLE DECISIONS

LIFE AND DISABILITY INSURANCE

Risk LIFE AND DISABILITY INSURANCE

DEBT 209m 17yrs 4m 224m 18yrs 6m Scenario 1: Capital R Lifestyle Expenses R6 000/m Loan R100,000 R1 493/m Scenario 2: Capital R Lifestyle Expenses R6 000/m No Loan

Children Lifestyle Financial Portfolio NewCurrent Investment Insurance / Risk Debt TOTAL SPENDING PLAN

3. RETIREMENT INVESTMENT CHOICES

FINANCIAL PLANNING CLUB INVESTMENT VEHICLE vs. INVESTMENT STRATEGY

Investment vehicle Investment strategy

FINANCIAL PLANNING CLUB INVESTMENT VEHICLES

R.A. Pension Funds Provident Funds Endowment Cash Property Shares Unit Trusts Preservation Funds Retirement Funding Non-retirement funding Discretionary vs. Compulsory (pg. 60)

FINANCIAL PLANNING CLUB Some investment vehicles FROM which you might retire

FINANCIAL PLANNING CLUB DEFINED CONTRIBUTION PENSION FUND

Contributions You Company Defined Contribution Pension Fund Benefit RISK Market Value Income

Defined Contribution Pension Fund Pension (Different types) 2/3 Pension 1/3 Lump Sum Less tax

FINANCIAL PLANNING CLUB PROVIDENT FUND

Contributions Market Value You Company Provident Fund Benefit Income Tax deferred After Tax Money

Provident Fund 2/3 Pension Full Value Less tax Spend Income Tax efficient

Provident Fund Pension (Different types) 2/3 Pension Tax free Lump Sum Income Taxable

FINANCIAL PLANNING CLUB Investment vehicles TO which you might retire

Pension Fund Provident Fund Retirement Annuity Lump Sum Pension (Different types)

Pension (Different types) ? ? RIP Income Capital

vehicles TO which you might retire 5 Things to think about: 1.Preserve capital for heirs 2.Flexibility 3.Longevity 4.Responsibilities 5.Inflation

with profit annuity How it works  Provides you with an escalating pension for life  Guaranteed for life  Escalation in line with fund performance  Can be joint – with spouse –(can reduce at first dying spouse - higher starting income)

with profit annuity Advantages:  Income guaranteed for life  Increases could keep pace with inflation Disadvantages  Capital dies  Inflexible

with profit annuity Where appropriate:  No responsibilities beyond your life  Preserving capital NOT a priority  Longevity  Don’t need future flexibility  (Other than varying escalation)  High interest rates when retiring  Under-funded retirement –(basic predictable income)

living annuity How it works  Select an investment strategy  Real return required to support lifestyle  Consider the risk  Can change the investment strategy  Income 2,5% - 17,5% pa  Can reset the income each year

Advantages:  Capital is preserved  Flexible  Income  Investment strategy  Can move money to another company  Can move money to another type of pension  Investment strategy can outpace inflation over time  Get good advice living annuity Disadvantages  You can erode capital  Longevity risk  ALSO: Investment risk

living annuity Where appropriate:  Preserving capital is a priority  Need flexibility –  changing circumstances  uncertain future  High Inflation  Good investment strategy can outpace  Life shortening illness  You  Partner

4. TAX BASICS IN RETIREMENT

INCOME TAX

Tax Free Below age 65 Above age 65 NIL Tax Low Tax Low Med Tax Med Tax High Tax High Tax

NIL Low Tax Med Tax High Tax Low Income Med. Income High Income

40% 15% 20% 25% 30% 35% R100

MEDICAL EXPENSES

Medical Lower Income Higher Income

Medical Lower income Higher income

TAX AND INTEREST

Interest

HOW TAX IS CALCULATED

40% 15%20%25% 30% 35% Pension 1 Pension 2 Work Annuity Interest 1 Interest 2 Interest 3 Medical Exempt interest

40% 15%20%25% 30% 35% Pension 1 Pension 2 Work Annuity Interest 1 TAX

15% Pension 1 40% 20%25% 30% 35% Pension 1 Pension 2 Work Annuity Prim. Rebate Age Rebate TAX Age Rebate Prim. Rebate TAX Threshold

duringdis-invest before TAX ON LUMP SUMS

Retirement Funds Income Taxable Income RA Pension Provident Taxable TAX ON LUMP SUMS

Income Lump Sum Tax Pension (Different types) RA Pension Provident

LUMP SUM Cash Tax Free Tax Lo Tax Med. Tax Hi RA Pension Provident

Above R900’00036% Next R300’000 27% Next R300’000 18% First R300’000 0% Lump SumTax R1,000,000R171,000 R900,000R135,000 R800,000R108,000 R700,000R81,000 R600,000R54,000 R500,000R36,000 R400,000R18,000 R300,000R0 R200,000R0 R100,000R0

dis-investbefore PREVISOULY DISALLOWED CONTRIBUTIONS

Cash Tax Free Lump sum Tax Low Tax Med. Tax High

Less tax R36’000 1/3 R500’000 2/3 R1’000’000 Discretionary investment R464’000 Living annuity (or similar) R1’000’000 Pension Fund R1’500’000 R1’464’000 Saving R36’000 1/3 R300’000 2/3 R1’200’000 Discretionary investment R300’000 Living annuity (or similar) R1’200’000 Pension Fund R1’500’000 Scenario 1 Scenario 2 HOW MUCH TO TAKE AS A LUMP SUM

Less tax R351’000 Discretionary investment R1’149’000 Provident Fund R1’500’000 R1’149’000 Saving R351’000 Tax free R300’000 Taxable R1’200’000 Discretionary investment R300’000 Living annuity (or similar) R1’200’000 Provident Fund R1’500’000 Scenario 1 Scenario 2 HOW MUCH TO TAKE AS A LUMP SUM

CASE STUDY Bob Jones Age 60 Provident fund R1’500’000 Lifestyle expenses R8’000/m

Age 85/86 Age 77/78 8 years Draw tax free portion only Draw Full lump sum CASE STUDY

Tax free R300’000 Taxable R1’200’000 Provident Fund R1’500’000 Less tax R351’000 Provident Fund R1’500’000 Discretionary investment R1’149’000 Fully Accessible Discretionary investment R300’000 No access Scenario 1 Scenario 2 Fully Accessible Living annuity (or similar) R1’200’000 TAX VS. liquidity

Low Liquidity Low TAXHigh TAX High Liquidity How much to draw as a lump sum?

SUMMARY 1: How the numbers work 2: Lifestyle choices 3: Investment choices 4: Tax basics

MONEY RETIREMENT