Make Your Resignation Less Taxing

Nomusa is 50 years old, she plans to resign from the Department of Education (DoE) at the end of the year. She is a single parent with two beautiful children, who are still at primary school. Her main expenses are: their school fees, groceries, bond repayments, car instalments and a personal loan. She wants to use her pension pay out to settle all her debts and renovate some parts of her house. She plans to start a daycare centre with the balance of her money. She has a pension benefit worth R1 million.

What are her options when she resigns?

Option 1: Cash benefit paid into her bank account

The pension administrator will process her withdrawal of R1 million from the fund and pay it diretly into her bank account. She will be taxed on this withdrawal and this will reduce the cash amount paid into her bank account. She will pay tax of R207 000, the amount that she will keep is R793 000.

Option 2: Transfer her pension benefit to preservation fund

One benefit of this option is that tax is not payable on resignation when the amount is transferred into an approved preservation fund. Thereafter, she has an option to withdraw up to one-third of her pension benefit in cash. The balance of the funds must remain in the fund until she reaches retirement age.

The role of a financial adviser in Nomusa’s retirement planning success:

Create a financial plan

A financial adviser will develop a workable plan to suit her personal financial goals and needs. A financial plan documents her financial goals and serves as the starting point for making decisions that suit her personal circumstances.

Set-up a budget

A financial adviser will assist her calculate how much money is required to pay-off all her outstanding debt and for her living expenses. A budget will let her know how much money can be put toward the goals defined in her financial plan.

Make her resignation less taxing

It is important to make sure that her retirement planning does not just suit her financial needs, but her tax situation too. A financial adviser can make her resignation as tax-efficient as possible by considering all the tax allowances available to her. In fact, with some careful planning she could pay no tax at all.

Review all her existing investments and policies

As she encounters life changes – she may need to reconsider whether her investments, funeral and life cover are still appropriate to her changing needs. She may need to start drawing an income from her investments, consolidate her funeral covers and cancel loss making investments.

Set-up a plan to save for her children’s education

The gift of education is the best thing she can offer her two children. It will prepare them for life and will give them a great start. With the cost of education rising, comfortably affording her children’s school fees requires careful budgeting. As with any investment plan, the sooner she starts putting money aside, the longer she will have her money work for her.

Evaluate her medical aid needs and find the most suitable cover for her

It is essential that the medical aid plan we select is able to meet her unique needs and that of her children. A quick personal healthcare needs analysis will help us determine what level of cover she needs. Her medical plan will also provide for her dependents, so we will need to check that their needs are covered too.

Set-up an emergency fund

An important part of a solid financial plan is an emergency fund. An emergency fund is designed to cover a financial shortfall when an unexpected event happens. The money in an emergency fund is available immediately.

Set-up her last Will and Testament

If she passes away without a Will that means she will have no control over who will receive the benefit of her estate. A Will ensures that Nomusa’s current wishes are taken care of and she can also nominate a legal guardian for her minor children. A financial adviser will offer her family professional estate administration assistance when it comes to the administration of her estate.

How can we help you?

Whatever your retirement goals, we will work with you to understand what you want to achieve and develop a plan to help you get there. Whatever you are planning for the future, we can give you the peace of mind that your money will work towards the retirement you want and deserve.