How do I invest for a R38 000 pm income?

I will have R7.2 million in a pension fund when I retire in April 2019.
A number of factors need to be taken into account when planning a post-retirement investment strategy. Picture: Shutterstock

I will have R7.2 million in a pension fund when I retire in April 2019 at 60 years old. I need advise on how to invest these funds so as to realise an income of R38 000 per month please?

Melony Jacoby - Mvest Finance

In attempting to answer the readers’ question, it is imperative to take cognisance of the fact that the answer below is not construed as advice.  

Post retirement planning in my opinion is one of the most important planning events that the reader will engage in, and I would encourage and urge this reader to engage with an experienced and skilled certified financial planner®, who will be in a position to coach and guide them through the process.

There are factors to consider when determining how and where to invest funds, which are unknown at present, but need to be considered and inevitably have enabled the brevity of the answer below:

  • Current personal situation
  • Current financial situation
  • Client’s objective and level of education and product experience
  • Taxation
  • Risk tolerance/risk profile
  • Inflation
  • Costs and fees
  • Estate planning


The member has the option of either a ‘conventional annuity’ or a ‘living annuity’. A living annuity is also commonly referred to as a linked life annuity, or an “Illa”.

A living annuity is a compulsory annuity, in respect of which the annuitant (the member) has the option to draw an income as follows:

  • Monthly, quarterly, or annually;
  • Not less than 2.5% and 17.5% per annum; and
  • Income drawdown may be reviewed annually up or down.


The reader has indicated that they wish to draw an income of R38 000 per month; I am not sure if this is nett income or gross. If it is gross income, they will be required to pay tax on the income. I am unaware of the reader’s tax rate. The income equates to approximately 6.5% of their capital. I have included the table below, to illustrate the effect of income drawdown, investment return and the effects of these in years on the income you draw:

Years before your income will start to reduce

Income Drawdown

Annual investment return before inflation, but after all fees

















































Source: Asisa

“It is important to note that the table above assumes that the income drawdown rate is adjusted over time to maintain a real income by allowing for inflation of 6% a year. Once the number of years in the table above has been reached, the pensioner’s income will diminish rapidly in the subsequent years,” states the Association For Savings and Investment SA (Asisa).

An analysis of the readers’ risk tolerance, and risk profile will assist in determining the investment strategy. The investment strategy will guide the financial planner as to the funds to select and use within the investment. Together, the planner and reader need to assess his/her tolerance to risk, the risks associated to meet their required return in order to provide the income, increasing with inflation for the term required.

In terms of the income the reader wishes to drawdown, R38 000, it is important to structure the annuity in such a way, that the income drawdown percentage portion of the annuity does not exceed the actual portfolio return. If this is the case, the capital will be eroded. The consistent performance and underlying composition of these funds are important factors to take into consideration.

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R38 000 per month from R7.2 million?

Should just just be doable but you run the risk of eating your capital if the markets are too flat. The general rule of thumb is that one can sustain-ably earn R5000 per million. With R7.2 million that is R35 000 (before tax).

I’d advice either working a bit longer or supplementing your pension in some other manner. Delaying a pension by as little as 2 or 3 years, really allows the compounding of the earliest retirement savings to works it magic.

60 is a relatively young age and if you don’t have serious health problems you will probably live to over 80.

Scaling back your lifestyle to suit the pocket is another option.

My estimatesn

5000 pm per million net of tax is approximately R75k PA and that’s a net yield of 7.5% off R1m. Whilst that may have been achievable in the past, appreciate if you can kindly point me to a current investment that can make 3% net of inflation (6%) and fees (2%)?

Regards living off R35k per month on R7m capital:
By way of a simple Calc, assuming your capital can earn you 2% return net of inflation and fees, then R35kx12mthsx1.25 (pensioner tax rate at this income level) annual income required of R525k.

Return on R7m capital invested:
Two percent net return on R7m capital invested gives you R140k pa.

Capital required for R525k PA income:
R525k/0.02= R26m

Above assumes the capital amount is preserved. You can go I to a more complex calc to draw on capital in the later years assuming you forecast your expiry date accurately. I use my estimates and capital consumption can become my survival tactic in my sunset yrs…

Not an advisor so posting here to share my ideas and get ideas from others.

Great answer!

Income solutions are an art … not a science. Sculpting the plan must always be done with the persons goals in mind! First question should be … what do you intend to do in retirement? Then decide on how to craft a plan that will make that work.

Two other options can be considered:

1. Offset some portion of the income using monies accessed through the Tax Free portion (should it be available) this could lower taxation

2. anyone ever considered a COMPOSITE annuity? part Living Annuity and part Guaranteed. It’s like having a basic income with a self-managed annually adjustable commission portion. One could even use With Profit annuity structures to hedge against inflation and still provide excellent income. This option is often over-looked yet is an extremely valuable option.

Just my thoughts!

You can contact me 0722158643 if you invest in commercial property or something similar you can get a rental income of about R70k per month with R7.5mil invested.

Wow! R70K pm on R7.5m capital (no bonds?) is an 11% return! Even gross of levies etc its bloody good! I can get 7% at a push. Is this offshore prop with forex exposure? Interested…

Neat! I have a similar strategy using different investments. I call it survive and thrive stra
t. Essentially I invest in property for rental income to cover my basic income needs (survive) and have typical retirement fund ETF for the fun times money (thrive). Although prop prices are stagnatish, rental yields are OK and performing better than my fund dogs.

Any thoughts, ideas?

My 2c.For those inclined to mathematical analysis, read the Retirement Income Frontier, an actuarial paper published by professionals from the Sygnia Group. Similar to the Efficiency Frontier in investments, there is a frontier for maximizing: income and ability to leave an inheritance upon early death, while minimizing: longevity and market risk. To ‘ride’ the frontier, you need a product that dynamically adjusts your portfolio and relative weighting between guaranteed and living annuity, while keeping costs low. Unsurprisingly, they have designed a product based on these findings called the ForLife annuity. Other providers have replicated the strategy now, but Sygnia remains cost competitive in this area.

This should not be interpreted as advise but purely a view point.

I would have taken a portion and invest that in a guaranteed income bond to try get higher income with security and to diversify income streams. Fedgroup offers 9% on fixed income and guaranteed capital. Only problem is that should you take 1/3rd allowed it will be subject to quite heavy tax (R130 500 plus 36% of amount over R1 050 000) alternatively you can take R500 000 tax free if you have not claimed any retirement benefits prior.

Should you be able to save another 2-3 years your capital should increase dramatically and then a goal of R38 000 should not be hard to achieve without depleting your capital. On ILLA’s the return currently is around 6-6.7% depending on insurance house however this does flactuate and is dependent on market conditions.

Should you split your investment between guaranteed income and capital (assuming Fedgroup 9% with R500 000 tax free) and balance into ILLA with 6% drawdown you can reach R37 250. This should be reviewed on annual basis since this does not take inflation into account over the long term.

Hope this helps

Fed group 9%…is it net of fees?

There are fixed income solutions available which can be used to give you your desired income without eating into your capital

He say’s he is in a Pension Fund. Why would you want to take all the money out and carry the full risk? Not sure if your Pension Fund give’s you that option. Take out a third and invest that. 7.2 million sounds like a lot of money but R38000.00 draw is high. Do you have a top medical aid.

I am retired in a Pension Fund and would not opt out if given an option.


African bank has a fixed deposit at 13.73%pa. Put R3.5mil there, it is secure, insured and guaranteed to give you R40k a month. Another R1mil in a good property fund then you can put the rest in slightly riskier funds for hopefully better returns.

Fixed deposit.. how do you draw monthly?

African Bank. No thank’s


R7.2m is not enough to generate R38k per month over the long term. You can only safely withdraw around R24k per month on that some of money, inflation adjusted.

Please look up the trinity studies on Google. Max safe withdrawal rate = 4%.

I train people on saving, investing and debt elimination. I ask the delegates all the time, “how many of you are really getting ahead financially?” I may get 2% of the people raising their hand. I then ask “how many have financial advisors?”, MOST raise their hands. My thought is simple–IF the financial advisors were doing their job more people would be getting ahead SO LEARN ABOUT YOUR MONEY AND THEN YOU CAN MAKE BETTER DECISION WITH YOUR OWN MONEY!
It’s your life, it’s your money, it’s your future! When will you start to take control instead of turning your life and future to some “expert” that does not care?? You need Financial Fitness

So if I raise my hand for the first question and don’t for the second, am I financially fit?

End of comments.



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