Retirement lump sum query

2013-03-01 07:38
retired couple
A Fin24 user writes: What benefit is there in fully utilising your one-third tax-free lump sum at retirement?

I do not need the entire third, should I only utilise what I need and leave the rest in the retirement fund?

An expert from PwC responds:

Whether or not you take the full one third would depend on your personal financial position, and whether you feel you could invest the funds and obtain a better return than what you would get through the fund investment.

It will also depend on whether you want or need to maximise the annuity that you will receive from the amount not taken out as a lump sum.

From a tax perspective, the lump sum is taxed in terms of its own table (see below), whereas any annuity income received is added to your other income and taxed at your marginal tax rate.

Please note, however, that this table applies cumulatively to all such payments received over a taxpayer's lifetime and applies both to retirement fund lump sums as well as severance benefits payable by an employer to an employee.

 - Fin24

* Visit our Budget Centre for full coverage of the 2013 Budget Speech, including a sin tax and personal tax calculator.

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