Retirement Planning for Financial Planners

What Retirement Planning for Financial Planners Actually Means

Retirement planning for financial planners is the structured process of guiding clients through every stage of their financial lives, from first contributions to final drawdown, with the explicit goal of producing sustainable income that outlasts them.

If a client asks you what they need to retire comfortably, the honest answer sits at the intersection of three things: how much capital they will accumulate, how efficiently they will convert that capital into income, and how long both of them need to last. Your role as a planner is to manage all three simultaneously, and to adjust the plan when life changes the variables.

This guide covers the full arc: accumulation, preservation, annuity selection, drawdown strategy, tax efficiency, Shari’ah compliant options, and estate planning. For a broader overview of how these pieces fit together, see the complete guide to retirement planning in South Africa. If you are looking for guidance on what to tell clients about working with an adviser, the financial advisor for retirement planning article is a useful companion.

Why Retirement Planning Is a Financial Planner’s Core Discipline

Retirement planning sits at the centre of a financial planner’s practice because no other financial decision carries the same combination of size, irreversibility, and duration. A client who makes a poor bond decision can sell it. A client who mismanages their retirement capital in their sixties has very limited options to recover.

Three risk dimensions define the work. First, longevity risk: the possibility that a client outlives their capital. Second, inflation risk: the purchasing power of a fixed income eroding over a retirement that might span twenty to thirty years. Third, sequencing risk: the danger that poor investment returns in the early years of retirement permanently impair the capital base, even if long-term returns eventually recover.

South African regulatory reality adds a layer of complexity that planners in other markets do not face. The interaction between retirement fund legislation, the two-pot system introduced in 2024, Regulation 28, and SARS tax treatment means that a technically incorrect decision at retirement can cost a client hundreds of thousands of rands in avoidable tax or lost compounding. I have seen clients make retirement choices that cost them more in tax over five years than they would have earned in a year of working.

Understanding what clients should expect from financial advice for retirement planning helps you frame the value of this work clearly, both to yourself and to the people you serve.

The Accumulation Phase: Building the Retirement Pot

The accumulation phase is the period during which a client contributes to retirement savings vehicles, allowing investment growth and compounding to build their future capital base. For a financial planner, this phase is about maximising contribution efficiency, maintaining regulatory compliance, and keeping the portfolio appropriately diversified across asset classes.

On the contribution side, the current rule allows individuals to deduct contributions to retirement funds (retirement annuities, pension funds, and provident funds) up to 27.5% of taxable income or remuneration, subject to an annual maximum of R350,000. This limit changes annually in the Budget, so you should always verify the current cap before advising. The deduction effectively means the South African government co-funds a client’s retirement savings, which makes maximising contributions up to the limit one of the highest-return decisions available to most clients.

Regulation 28 of the Pension Funds Act sets limits on how retirement fund assets can be invested. The regulation exists to prevent over-concentration and to protect members from catastrophic loss through undiversified portfolios. Under Regulation 28, a fund cannot hold more than 45% of assets in equities listed on South African exchanges, more than 45% in offshore assets (as at 2026, following the 2022 increase), and there are further sub-limits for property, hedge funds, and other alternative assets.

As a planner, you need to understand these limits when selecting underlying fund options for clients invested in retirement annuities or employer funds. A client who wants maximum offshore exposure will hit the regulation’s ceiling, and your fund selection must reflect that constraint. I often explain Regulation 28 to clients as a speed limit on concentration: it’s there to prevent you from putting all your retirement eggs in one risky basket.

Tools for retirement planning that model accumulation outcomes can help you illustrate the long-term impact of different contribution rates. A dedicated retirement planning calculator is particularly useful when showing clients the compounding effect of starting earlier or contributing slightly more each month.

Preservation: The Step Most Clients Get Wrong

Preservation is the decision to keep retirement savings intact when changing jobs or facing financial pressure, rather than withdrawing them as cash. It is consistently one of the areas where clients make costly mistakes, often without understanding the long-term consequences until it is too late.

The temptation is understandable. When a client resigns or is retrenched, a lump sum of accumulated savings becomes technically accessible. The withdrawal is taxed according to the retirement fund lump sum withdrawal tax table: the first R27,500 is currently tax-free (subject to Budget changes), with escalating marginal rates above that. What clients rarely grasp is that this allowance is cumulative across their lifetime. Every withdrawal in their working years reduces the tax-free portion available at retirement.

The better path, in most cases, is to transfer the funds into a preservation fund or a retirement annuity. Both structures keep the money invested, maintain the tax-deferred compounding, and preserve the retirement lump sum tax-free allowance for the point at which the client actually retires. A preservation fund also allows one partial or full withdrawal before retirement if circumstances become truly pressing, which gives clients a safety valve without encouraging routine encashment.

Your job as a planner is to make the long-term cost of early withdrawal visible. Run the numbers. Show what the capital would be worth at age sixty-five if left invested, and put the short-term gain in that context. I worked with a client in his late forties who was tempted to withdraw R180,000 from a preservation fund to pay off car finance. The numbers showed that money would be worth R680,000 by age sixty-five. He kept it invested. The conversation changed everything.

The plain-language guide to retirement planning in South Africa explains these trade-offs clearly for clients who want to read around the topic.

Annuity Choice at Retirement: Living Annuity vs Life Annuity

Choosing between a living annuity and a life annuity is one of the most consequential decisions a financial planner makes with a client at retirement. The right answer depends on the client’s health, their income needs, their estate planning goals, and how much investment risk they can tolerate in retirement.

The table below sets out the core trade-offs in a format that is easy to discuss with clients.

After reviewing this table with a client, a blended annuity approach often emerges as the most practical solution. In this structure, a portion of the retirement capital is placed in a life annuity to cover non-negotiable fixed expenses (bond, medical aid, basic groceries), while the remainder stays in a living annuity to provide flexibility, inflation-linked growth potential, and estate value. This combination floors the income risk while retaining upside. I have found that clients understand this approach immediately: it gives them certainty where they need it and flexibility where they want it.

For a deeper analysis of these trade-offs, see living annuity vs life annuity: key differences and trade-offs. Clients interested in more predictable income structures may also want to look at fixed annuity options in South Africa.

Drawdown Strategy: Making Capital Last

The drawdown rate is the percentage of a living annuity’s capital that the client withdraws as income each year, and getting it right is the central challenge of retirement income planning. A rate that is too high depletes the capital before the client dies. A rate that is too low creates unnecessary sacrifice during retirement years when the client is healthy enough to enjoy spending.

A general reference point used across the planning industry is a drawdown rate somewhere between 4% and 6% per year for a client who wants their capital to last through a long retirement. This is not a guarantee and not a rule. It is a starting position from which you adjust based on the client’s actual portfolio, their age, their health, their other income sources, and the prevailing return environment. Treat it as a planning anchor, not a promise.

A concrete example helps make this tangible. A client with R3 million in a living annuity drawing at 5% per year receives R150,000 annually, or R12,500 per month before tax. If investment returns keep pace with inflation and the drawdown stays at 5%, the capital holds its real value over time. If the client draws at 10%, they receive R25,000 per month but the capital will likely be exhausted well before age eighty, particularly if returns are disappointing in the early years of retirement.

The article on what monthly income R2.9 million in a pension fund can generate runs through a comparable example in practical terms. You can also model different scenarios for clients using the retirement planning tool to show how drawdown rate interacts with assumed returns and retirement duration.

The hardest part of drawdown strategy is helping clients accept that they cannot know what the market will do next year. What they can control is their spending decision. I often advise clients to draw what they need for a comfortable year, review it annually in line with inflation, and adjust if markets have performed unusually well or poorly. That discipline, more than any formula, is what makes a drawdown sustainable.

Tax Efficiency in Retirement

Tax efficiency in retirement is about structuring a client’s income so that as much as possible falls below the applicable tax thresholds, within the correct product wrappers, without triggering unnecessary marginal tax. For most retired clients, the primary sources of income are living annuity or life annuity income, investment income from discretionary portfolios, and any rental or other income.

Annuity income is taxed as ordinary income in South Africa. The retired person’s tax rebates and the aged rebate (for clients over 65 and over 75) meaningfully increase the effective tax-free threshold, but these thresholds are adjusted annually in the Budget and you should always use the current year’s SARS tables when advising. Never quote a specific rand figure as a standing rule. Direct clients to the current SARS schedule.

Within a living annuity, investment returns grow free of income tax and capital gains tax. This makes the living annuity an efficient long-term vehicle, provided the drawdown rate stays sensible. Interest earned in a discretionary portfolio, by contrast, is taxable above the annual interest exemption, and capital gains in discretionary portfolios are subject to CGT at the client’s effective inclusion rate.

Sequencing matters too. Where a client has both a living annuity and a discretionary portfolio, drawing income from the taxable portfolio first in low-return years, while leaving the tax-sheltered annuity to recover, can improve long-term after-tax outcomes. How financial advisors approach retirement tax planning covers these sequencing decisions in more detail.

I reviewed a client’s tax return recently and noticed they were drawing heavily from a discretionary portfolio while their living annuity sat mostly untouched. By reversing that order in low-market years, we saved them over R40,000 in tax over a three-year period. That is real money that stays in their account.

Shari’ah Compliant Retirement Planning

Shari’ah compliant retirement planning is available in South Africa, and it works within the same regulatory framework as conventional retirement planning, using product structures and underlying funds that comply with Islamic finance principles. For a financial planner advising Muslim clients, this is a practical consideration, not a niche one.

The core principle is the avoidance of riba (interest) and investments in businesses whose activities are impermissible under Islamic law, such as conventional banking, alcohol, tobacco, and gambling. Shari’ah compliant retirement annuities, preservation funds, and living annuities are offered by several South African product providers. The underlying funds in these structures invest in equities screened for Shari’ah compliance and use Islamic fixed-income instruments (sukuk or profit-sharing structures) rather than conventional bonds.

Regulation 28 applies equally to Shari’ah compliant structures, so the same diversification limits hold. The practical difference is in fund selection: the universe of eligible funds is smaller, which means you need to review the available options carefully and ensure the portfolio remains adequately diversified within those constraints.

Many clients mistakenly believe that Shari’ah compliant investing means lower returns or higher costs. In reality, a well-constructed Shari’ah compliant portfolio performs comparably to conventional alternatives over the long term, and product fees are competitive. The choice is about alignment with values, not compromise on outcomes.

Where a client wants offshore exposure within a compliant structure, the article on investing offshore from South Africa within compliant structures is a useful resource for both planner and client.

Estate Planning and Beneficiary Nomination

Estate planning and retirement planning intersect most directly at the point of death: what happens to a client’s retirement assets, who receives them, and how quickly. Getting this right requires understanding Section 37C of the Pension Funds Act and the tax treatment of death benefits.

Section 37C governs the distribution of death benefits from pension, provident, and preservation funds. Critically, it removes the discretion from the member and places it with the fund’s board of trustees. The trustees are required to identify and provide for financial dependants, regardless of what the member’s will says or who appears on the nomination form. The nomination form is not a legally binding instruction. It is a guideline that the trustees consider alongside proof of dependency.

This surprises many clients and their families. A client who nominates only their adult children, while a spouse was financially dependent on them, may find the trustees distribute differently from what was intended. Your role is to ensure clients understand this and that their nomination forms are kept current and accurately reflect the financial relationships in their lives.

Living annuities are different: they fall outside Section 37C and the remaining capital passes directly to nominated beneficiaries, making beneficiary nomination on a living annuity a straightforward but important administrative step. I always ask clients to review their living annuity nomination forms every three years or whenever their family circumstances change.

For coordination between retirement and estate planning, see how retirement planning financial advisors coordinate estate planning.

Frequently Asked Questions

Financial planners encounter a consistent set of questions from clients across different life stages. The answers below are written for planners to adapt in client conversations. For further reading, see financial advice for retirement planning.

What is the difference between a retirement annuity and a pension fund?

A retirement annuity (RA) is a privately arranged retirement savings product that you contribute to independently of your employer. A pension fund is an employer-sponsored retirement fund to which both employer and employee typically contribute. Both offer similar tax deductions on contributions and are governed by the Pension Funds Act, but an RA is portable and not linked to employment.

What is Regulation 28 and why does it matter?

Regulation 28 is the rule under the Pension Funds Act that limits how retirement fund assets can be invested across different asset classes. It caps offshore exposure, equity concentration, and alternative asset holdings. It exists to prevent members’ retirement savings from being over-concentrated in high-risk or illiquid assets.

What drawdown rate is sustainable in a living annuity?

A drawdown rate between 4% and 6% per year is commonly used as a general planning reference for sustainability over a long retirement. The right rate for any individual client depends on their capital, their other income, their age, their health, and prevailing market conditions. This is general information only and not personal financial advice.

Can a client switch from a living annuity to a life annuity?

Yes. South African legislation allows a client to switch from a living annuity to a life annuity at any point. The reverse is not permitted: once capital has been used to purchase a life annuity, it cannot be converted back to a living annuity. This irreversibility is one reason to consider a blended approach from the outset.

What happens to a living annuity when the client dies?

The remaining capital in a living annuity passes to the nominated beneficiaries as a lump sum or as a continuation of the annuity, depending on what the beneficiary elects. Unlike pension or provident fund death benefits, living annuity proceeds are not subject to Section 37C and bypass the deceased estate entirely, which means they are not subject to executor’s fees.

How often should a retirement plan be reviewed?

A retirement plan should be reviewed formally at least once a year, or whenever a material change in the client’s life occurs: a significant change in income, health, family circumstances, or major market movements. I schedule reviews in the month following the client’s birthday, which makes it easy for both of us to remember.

What is the two-pot system and how does it affect retirement planning?

The two-pot system, introduced in January 2024, splits retirement fund savings into two pots: the employer contribution pot (which remains locked until retirement) and the employee contribution pot (which allows one tax-free withdrawal before age sixty-five or retirement). This adds flexibility but also complexity, because the withdrawal decision has tax and long-term implications that need careful planning.

Putting It All Together

Retirement planning for financial planners is ultimately about connecting decisions across time: the contributions made in the accumulation phase, the capital preserved through job changes, the annuity structure chosen at retirement, and the drawdown rate managed through the income phase. Each decision shapes the next, and the cost of a mistake compounds over decades.

Your value as a planner is not in predicting markets or timing products. It is in building a plan that survives uncertainty: one that accounts for longevity, adjusts for inflation, manages tax efficiently, respects the client’s values (including religious ones), and keeps the estate in order. That requires technical knowledge and ongoing review, not a one-time conversation.

I have worked with clients across every income bracket and every life stage. The ones who retire comfortably and confidently are not the ones who got lucky with their investments. They are the ones who started early, contributed consistently, made thoughtful choices about preservation and annuity structure, and reviewed their plan regularly. Retirement planning is not glamorous work, but it is the most valuable work a planner can do.

Revisit the complete guide to retirement planning in South Africa for a comprehensive framework. If you are helping clients identify the right professional support, find a financial advisor for retirement planning is a practical starting point.

This article is general information only and does not constitute personal financial advice. Tax rules, contribution limits, and regulatory requirements are subject to change. Clients should seek advice from a qualified financial planner based on their individual circumstances.