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# Pay less tax when you retire, with careful planning

When you are older, a key goal should be paying off your bond to make retirement less expensive.

It is important to make sure that your retirement planning does not just suit your income needs, but your tax situation too. You can make your retirement as tax-efficient as possible by considering all of your tax allowances together. In fact, with some careful planning you could pay no income tax at all.

### R500 000 tax-free lump sum

At retirement you can withdraw two-thirds of your pension fund or retirement annuity as a cash lump sum and you must use the rest to buy a guaranteed life annuity or living annuity that will provide you with a monthly pension.

Up to R500000 of this cash lump sum can be taken as tax-free cash on retirement. If you are planning to take a lump sum in excess of your R500000 tax-free cash, you could benefit from speaking to a financial adviser.

An adviser can show you how much you can afford to withdraw and how your withdrawals may affect your income tax bill.

When it calculates how much tax to deduct from your lump sum benefit, the South African Revenue Service (SARS) takes into account all previous withdrawal, retirement and severance payments you have received from your retirement funds.

These payments include:

• All retirement lump sum benefits (including death benefits) that accrued
to you from October 1 2007;
• All withdrawal lump sum benefits accruing from March 1 2009; and
• All severance benefits accruing from March 1 2011.

### Illustrative example

Nomusa Dladla is 60 years old, she plans to retire from her job and has R1-million in her pension fund. She would like to take the full one-third of her market value in cash. She must use any remaining amount to buy an annuity that can provide her with an income in retirement. We can use the rates in Table 1 to calculate the tax that will be deducted from her account.

• Step 1: Calculate how much is one-third of her pension benefit

Calculation: 1/3 x R1000000

Total benefit to be taken as cash: R333 333.

• Step 2: Apply the retirement benefit table (Table 1) to the total benefit to be taken as cash.

You do not have to pay tax on the first R500000 of your retirement benefit. This means that Nomusa will not pay tax on her total benefit of R333333 since it is less than the R500 000 tax-free amount. Please note that this example assumes that this is the first time Nomusa will receive a lump sum from a retirement fund. The 0% on the first R500 000 is a once-off benefit and applies across all of your retirement funds.

### Consult with a professional

Planning for your retirement is not something to be taken lightly. This is because your retirement savings are probably your biggest asset. So you need to be aware how your choices now will affect you later in life.

When you retire you are faced with a problem: it is not easy to reverse the choices that you made earlier in life. With careful planning, a commitment to saving and an understanding of your options, you can achieve a financially secure retirement.

• Owen Nkomo is chief executive of the Inkuzi Wealth Group