Andries Cilliers, financial planning analyst for senior market advice at Sanlam, responds:
Assumptions:
1. The full pension fund will be transferred to an investment linked life annuity fund (ILLA) at no initial cost.
2. The underlying investment funds of the ILLA will be according to the suggested asset class allocation for cautious to moderate investors.
3. A net average yield (after costs) of 9.0% p a on the ILLA fund.
4. An inflation rate of 6% p a at all times (in other words, your required income must escalate at 6% p a).
5. The required pre-tax income in year 1 is R10 000 p m.
Twelve percent of the ILLA fund value must be withdrawn as an income in year 1 (R10 000 x 12 ÷ R1 000 000).
You will be able to take your required pre-tax income for four years before the maximum withdrawal rate of 17.5% of the ILLA fund value p a is reached.
It would be best to consult a financial adviser, who will be able to consider your unique circumstances.
- Fin24
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