Where should a pensioner invest R1m to receive a R20k monthly income?

From a pure income perspective, a voluntary life annuity does appear to be the best option.

My aunt, aged 73, recently sold her primary residence and is living with her son and his family. She received ±R1 million from the sale of the house. How much or in what products should she invest to receive at least R20 000 per month?

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Thank you for your question.

Drawing R20 000 of income per month from a capital amount of R1 million is a very high drawdown rate that will result in capital erosion over time. However, there are options that can be explored in order to get as close to that income level as possible.

The first option could be investing the full R1 million in a regular unit trust investment whereby an income of R20 000 per month or R240 000 per year is drawn. Using a simple capital preservation calculator, we can make a fairly accurate prediction of how long this money will last.

Assumptions:

  • There is no need to increase income year on year; and
  • The return is 10% per annum.

Using the above assumptions, the R1 million capital value will be totally exhausted after ±six years. This is also a best-case scenario where the market does relatively well for the foreseeable future.

Another, perhaps better, option would be to buy a voluntary life annuity with the R1 million. A life annuity is a financial product that features a predetermined periodic payout amount until the death of the annuitant. The downside of this type of structure is that the policy ceases on death (meaning no money will be passed on to beneficiaries).

After getting quotes from various institutions, purchasing a R1 million life annuity should provide your aunt with an income stream of ±R11 000 per month for life.

Please note this quote has been structured using the following assumptions:

  • Single life annuity;
  • No annual increase in income; and
  • No guaranteed term (policy ceases on death).

From a pure income perspective, a voluntary life annuity does appear to be the best option for your aunt. However, to have this question answered fully, I suggest getting in touch with a qualified advisor who can guide you in the decision-making process after reviewing your aunt’s full financial information relating to things like ad hoc liquidity and legacy requirements.

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Buy shares in a company which pays a good dividend per share before last day to trade. You will get an interim dividend , and a final dividend. Let’s say you buy a share at R 60.00 and it pays R8 per share, you will get 1000000/60 = 16666.67xR8= 133333.33/6 = R 22222.22 per month x0.2 = R4444.44 for Sars(dividend tax).Share used was Omnia, as an example. God bless

I simply can’t help myself with this one, so here goes and in keeping with the original question in mind: Firstly to set up a trade account will have some costs involved, not much but to be taken into account. Once you have purchased your “Omnia” interim share a day before LDT, the share price has absorbed (read risen the equivalent of) the expected dividend price, it then drops the next day (post div.) by roughly the dividend amount. That dividend, on pay out to you, will also be subject to a 20% withholding tax (if Omnia is not a REIT) thus that trade will be largely negligible provided you do not sell the share. In 6 months time it may or may not be profitable based on share price growth and the final dividend. Remember; a share has neither a gain or a loss untill you sell but transaction costs and taxation marches on. Accumulating dividends from a share over time is what pays off provided you implement the “buy and forget” protocol.

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