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Do I invest in an income/growth portfolio or a pure income fund?

I have R6 million to invest for retirement income: which option is best?

I’m planning to retire within the next 11 months and am wondering what is going to be the best way to invest for income? If I have R6 million to invest and only need to draw approximately R150 000 a year from this capital, will it be better to invest all the money in an income/growth portfolio, and draw let’s say 2.5% – or would it be better to invest R4 million (mostly cash) in a pure income fund and draw say 4%, putting R2 million in a growth fund and then topping the income portfolio up every three to five years?

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Please note the information provided below does not constitute financial advice; in fact, we are precluded from giving specific advice. Generic information has been applied in the context of your question. As we have limited detail about you and your circumstances, such detail may impact any advice provided.

Congratulations on reaching the milestone of retirement with available funds to invest and preserve. You should consider yourself lucky: not many people in our country have the same opportunity. Making use of the services of a professional financial planner is recommended as you embark on the journey of post-retirement.

The post-retirement term is the time in your life when your retirement savings capital must sustain you for the duration of retirement, with the hope that the remaining capital in the event of death can be passed down to your beneficiaries. But retirement planning is not done in isolation and the following factors must be considered:

Age of retirement

You don’t say how old you will be at the time of retirement. This is an important consideration as there are different approaches to managing your retirement investment, depending on the period you will need to sustain yourself without working.

Portfolio allocation

During the term of retirement, the following allocations must be considered:

  • Cash portfolio
    • To provide access to liquidity (in the event of an emergency, for example), a portion of the capital could be allocated into money market funds.
  • Income portfolio
    • This is to provide for monthly living expenses for at least five to seven years. An example could be the allocation of a portion of funds into income funds to provide income. If the yields are 7.5%, then R187 500 per annum can be withdrawn.
  • Growth portfolio
    • This is to provide long-term capital growth with the option to top up income. An example of this portfolio could be an allocation into growth funds, with the option to top up the income funds to provide for living expenses.

Term of retirement

We’d all like our retirement capital to outlive us, but this is not always the case. With improved medical facilities and treatments available, the ‘risk’ of living longer becomes a reality. When your retirement savings capital is not enough to cover your living costs at retirement, it could result in increased drawing from capital, which will ultimately lead to the risk of capital erosion.

Living cost

I will assume that your only source of income will be the retirement savings, based on the information provided.

It is important that you review your living costs to minimise your drawing rate.

Factor in additional costs like travel and replacing or buying a car every five years. These living costs must be inflation-adjusted, as the cost of living increases with inflation. Other above-inflation adjusted costs include medical aid, the cost of electricity and petrol. Is the R12 500 a month (the R150 000 per annum you say you require) enough to cover these expenses?


Your portfolio should have some liquidity to provide you with funds in the event of an emergency. Retirement savings in the form of a living annuity do not provide clients with access to ad hoc liquidity, therefore a portion of the savings should be allocated to provide for liquidity.


As mentioned above, your drawings and long-term capital should keep up with inflation. Allocating funds to income funds has a prospect of delivering yields that will keep up with inflation. Allocating funds into growth assets has a prospect of delivering above-inflation returns in the long term.

Other factors

Other factors to consider include risk profiling, risk planning, estate- and tax planning, market movement, interest rate cycles, lifestyle changes and health issues.

I hope my response has given you some thought-starters to assist with your decision-making process. It is very important to consult with a professional financial planner so they can assist you in putting together a tailor-made retirement-planning strategy. These are your life savings and this journey should not be walked alone.

Do you have any questions you would like answered by registered financial planners?

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