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Affluent retirees do things differently

The 2015 Sanlam Benchmark Survey, specifically the results of the questions posed to pensioners, may provide some insight into what exactly it is affluent retirees (earning more than R25 000 p.m.) do differently from the core group (earning up to R25 000 p.m.) The table below captures a few of the most important differences.

Table 1: The value of financial advice

 Core group:
Monthly income up to R25k
Affluent group:
Monthly income exceeds R25k
% that received financial advice before retirement67%84%
Average age at which they started saving26.923.6
Timing of advice (on average)10.5 years before retirement12.3 years before retirement
Majority received advice from:Company’s HR officer and personal financial plannerPersonal financial adviser
% that were aware of their benefits > 5 years before retirement25%42%
For those who took pre-retirement withdrawals:63% did not realise how much tax they would pay on withdrawal63% did not realise how much tax they would pay on withdrawal 25% did not realise how much tax they would pay on withdrawal
% that used lump sum to reduce short-term debt (excluding mortgage)35%46%

Source: Sanlam Investments | June 2015

3. Affluent retirees only pay as much tax as needed

One in four core group retirees took a lump sum withdrawal at the point of resignation or retrenchment, while only one in five affluent retirees dipped into their retirement savings before their actual retirement date.

But depleting their savings in this way was not the only damage done. A whopping 63% of the core group who withdrew money was not even aware how much tax they would need to pay on this pre-retirement withdrawal (much more punitive than lump sum withdrawals at retirement.) A financial planner’s knowledge of the Pension Funds Act and tax legislation is therefore pivotal at the point of resignation or retrenchment.

Whereto for Janet?

Once a retiree has converted all her retirement savings to a guaranteed life annuity (fixed monthly income for life), the financial adviser’s hands are tied in terms of retirement planning. However, an adviser can still assist Janet to draw up a budget and show her where she can cut her costs by, for example helping her to find better value-for-money life, medical or general insurance. More than half of pensioners who have an income shortfall, need to withdraw money from a contingency savings plan to survive. If Janet belongs in this group, there may be alternative savings products, with which an adviser specialising in investment planning will be very familiar, that may give her that extra income boost that she needs.

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