Retire: Both sides of retirement age

Broadly speaking, there are three types of people who walk amongst us. The Warren Buffetts of the world who are happily clocking in for work at the ripe old age of 90, the FIRE (Financial Independence, Retire Early) cohort who have their sights firmly set on early retirement, and the rest of us who are actively working towards retirement when we hit 55 or 65. But what happens to our retirement products when our plans change?

Is there a legal retirement age in South Africa?

The Basic Conditions of Employment Act does not prescribe an age at which employees must retire. However, an employee’s retirement age is usually determined by the employer and contractually agreed to by the employee.

My age and access to my RA

I’m 55 years old. I still earn a salary from my employer, and I want to withdraw from my retirement annuity (RA).

You can withdraw from your RA when you turn 55 years old. The caveat here is more tax: If you are still earning an income from your employer, the tax rate on your annuity income will be higher. You are also only allowed to withdraw one-third of your annuity as a lump sum. That lump sum is subject to tax

I’m 55 years old. I want to withdraw from my retirement annuity (RA), but the stated maturity date on my RA is 60 years.

You can withdraw from your RA, but because you contractually agreed to contribute to your RA until age 60, you might incur an early termination penalty.

Can I contribute to my RA past the maturity date?

Yes. When you reach your RA maturity date, you basically have three options:

You can make it paid up, i.e. you can stop contributions, but leave the investment to grow;
You can continue to contribute to your RA;
You can withdraw a lump sum of up to a third of the RA value, and invest the rest in an annuity. We took a deeper dive into living vs guaranteed annuities in this blog post.

My age and access to my pension and/or provident fund

Pension and provident funds are workplace-based retirement plans. If you’re a member of your employer’s pension or provident fund, you can access your pension savings when you resign or upon retrenchment – no matter your age. But the caveat here again is tax: If you cash out before retirement, your tax liability is significant, in other words, more than what you would have paid if you retired from the fund.

This post discusses the difference between pensions, retirement annuities and provident funds.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.