Here’s how to manage your finances post-retirement

Retirement can bring a sense of financial security, but it's important to manage your pension savings wisely to avoid stress. Consulting actuary Natasha Huggett-Henchie at NMG Benefits advises retirees to understand their tax position and plan ahead. The South African Revenue Service (Sars) considers pension payouts as taxable income.

For those under 65, the tax-free limit is R99,000 annually; for ages 65-74, it's R153,250; and for those 75 and older, it's R171,300. Lump-sum withdrawals have separate rules, with a one-time tax-free amount of up to R550,000. Amounts above this, up to R770,000, are taxed at 18%, and higher amounts incur higher tax rates. For instance, withdrawing R770,000 results in R39,600 in tax, leaving only R730,400.

Huggett-Henchie recommends taking only the tax-free portion and investing the remainder in an income-generating product. In retirement, you must reinvest your pension savings into a financial product that pays out a monthly income. Two main options are a living annuity, which earns interest on the capital amount, but may run out, and a life annuity, which guarantees a monthly income for life but leaves no capital for heirs.

Huggett-Henchie suggests a combination approach, investing 20-40% of savings in a life annuity for basic living expenses and the remainder in a living annuity for non-essential spending and potential inheritance. Pay off all debt before retiring, increase contributions to retirement savings, adjust lifestyle gradually, and consider joining a private medical scheme.

Relying on the South African Social Security Agency's Older Person’s Grant is not advisable, as it provides far less than most retirees need. Planning early, ideally three to five years before retirement, is crucial for ensuring a comfortable retirement.