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Investment choices when leaving a retirement fund

Investment choices when leaving a retirement fund

When you retire or leave your current employer, you are faced with a number of retirement investment choices and depending on your financial position at the time of retirement differ quite significantly. You may wish to do some travelling, buy a boat or simply spend time persuining you passion for painting and spending more time with your family.

We all have different goals and aspirations for our Golden years and the decisions you make when you leave your company pension fund or retirement plan should be in line with your aspirations, providing sufficient funds when you need it.

There are essentially a few different options available to you and must be seen in conjunction with the rules of the scheme that you have participated.

Taking your retirement savings in cash

Pension funds allow you to withdraw up to one third of your retirement benefit in cash. You need to carefully consider your future planning before you spend the money on anything that is not an investment. The use of retirement funds drawn in cash to purchase for example, a property, vacation or to invest in a new business will attract a sizable amount of tax.

If the pension scheme is a provident fund on the other hand, you are entitle to take the entire amount in cash.

Buying a living annuity

Living annuities are often the investment of choice for many retiring people as a way of preserving their capital and providing a reliable income into retirement. When leaving a pension fund there is two thirds which has to be invested in an annuity investment and the other one third can also be invested in a similar or the same type of annuity, perhaps with a different risk profile. There is no tax payable when retirement benefits are transferred to an annuity investment, the income you receive from your annuity will form part of your gross income and be taxed at the marginal rate.

Transferring your retirement funds to a preservation fund or Retirement Annuity

Transfer to a preservation fund is a choice for those that are not leaving their employers fund to retire, but have left their employment for other reasons. A preservation fund preserves the capital amount and attracts no tax but you are not able to touch the money until retirement age. This is a prudent way to preserve your retirement capital if you still have a number of years of working ahead of you. The other popular transfer of retirement funds is to a retirement annuity which also attracts no tax and cannot be touched until retirement. The risk associated withe two options are different.

In essence, successful retirement funding requires you to have enough capital to provide you with an income that will support you and any dependents in the lifestyle you have chosen for the balance of your days.

The choices available for retirement have different risks attached to them and unless you have built up sufficient capital to have an excess over an above your retirement requirements, should choose the less risky investment options that protect your capital and provide guaranteed or low risk returns.

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