Retirement Investment Guide: Income

Feel free to reach out to PSG Wealth Manager  Jac Van der Spuy  directly.

1.    Introduction

Retirement marks the beginning of a new financial phase – one that demands a balance between preserving capital, generating income, and maintaining flexibility. South African retirees face unique challenges: inflation risk, longevity risk, and uncertain market conditions. This guide provides a practical overview of the investment products and strategies retirees can use to build a robust, lifelong income plan while maintaining access to discretionary capital and emergency funds.

2.    Core Income Planning: Creating a Lifelong, Inflation-linked Income

Generating income that grows with inflation is critical to preserving purchasing power over time. The foundation of any retirement income plan should be a blend of secure, inflation-adjusted income and growth assets to hedge against longevity and market risk.

Primary Income Options

3.    Growth Assets: Keeping Pace with Inflation

Retirees still need growth assets in their portfolios – especially if retirement could last 30+ years. The key is balance: protect income, but don’t abandon growth entirely.

Typical recommended Asset Allocation for Living Annuities

4.    Discretionary Investments: Flexibility in addition to Retirement Products

Discretionary capital – investments in an investment vehicle other than a retirement product – provides liquidity and planning flexibility. These funds can be used for unexpected expenses, legacy planning, or future purchases.

Some options for Discretionary Capital

• Tax-Free Savings Account (TFSA)
  Ideal for long-term growth; returns are tax free. Limited to R36 000 per year and R500 000 lifetime contributions.
• Unit Trusts / Exchange Traded Funds (ETFs)
  Broad access to local and global equity markets, income funds, and balanced portfolios.
• Endowments
  Tax-efficient if investor’s income falls within a higher marginal rate (for high-net-worth individuals). Access to capital limited for the first 5 years.
• Direct Offshore Investments
  Allows currency diversification and access to global opportunities. Subject to exchange control limits.

5.    Emergency Fund and Capital Expenditure Planning

Unexpected events and planned capital projects can derail a retirement plan if not properly accounted for. Setting aside liquid capital helps maintain your income strategy.

Emergency Fund

• Target value: 3-6 months of expenses
• Suitable investment strategy: Money market or high-interest savings account
• Purpose: Cover unplanned medical bills, home repairs, or travel emergencies

Planned Capital Expenditure Fund

• Target size: Based on expected needs (e.g. car replacement, home upgrades)
• Suitable investment strategy:

o   Income funds, short-term unit trusts (1-3 year horizon)

o   Replenish every few years from discretionary or annuity surplus

6.    Final Thoughts and Practical Tips

• Annual reviews: Revisit your investment goals, withdrawal rates, asset allocations, and planned expenses every year.
• Withdrawal caution: For living annuities, if possible, stay within a 4-5% drawdown range to protect long-term sustainability.
• Diversification matters: Spread risk across asset classes, geographies, and product types.
• Estate planning: Make sure beneficiaries are updated for all annuities and discretionary accounts and that your will is up to date.