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Making ends meet with R8m

Dec 11 2013 11:41
A Fin24 user who has saved R8m wants to know if she's on the right path with her drawdown strategy for retirement earnings. She writes:

I am a 58-year-old retiree with no debt. I did not belong to a pension scheme nor do I have any RA policies.

I have however managed to save approx R8m over time which has been invested in the Allan Gray Equity Fund. My plan as from next year is  to drawdown approx R500K per annum to cover our living expenses. 

I  need to know if this strategy is correct and also how would my tax be structured. I do not have any other source of income.


Richard Carter, Head of Product Development at Allan Gray responds:

While an investment in a South African equity-only fund has the potential to deliver sufficient returns over the long term, two things need to be borne in mind.

The first is that equity markets are volatile and there could be years when the returns received are very low or negative, and the second is that the long-term returns going forward could well be a lot lower than in the past.

If either of these happen, you might need to award yourself below-inflation income increases in order to make your investment last. You might be able to live with this risk, but to mitigate it you could think about diversifying your investment by considering an asset allocation fund that uses other assets to reduce market risk.


In terms of the tax element of your question – you will be taxed on any investment income derived from your Equity Fund investment. This will include dividend tax at 15% on any dividends received from the Fund, as well as income tax on other taxable investment income received from the Fund.

The withdrawal of R500k per year will trigger capital gains tax; the maximum effective tax rate for individuals is 13.3%. The first R30 000 of the capital gain will however be exempt. This is based on the 2013/2014 thresholds and percentages and may change in future years.

- Fin24

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