The vital role of tax directive simulation in the retirement process

Few financial advisers, or their clients, seem to know the risks of not performing a tax-directive simulation before making a withdrawal from a retirement fund. Emile van der Spuy of Gravitas Tax explains the vital importance of this financial-planning tool.

What happens if a financial adviser doesn’t perform a tax directive simulation on a client’s half before they withdraw funds from a retirement vehicle? Emile van der Spuy of Gravitas Tax explains.

When you exit a retirement fund – which can occur when you retire, resign, are retrenched, emigrate or get divorced – a tax amount will be payable to the South African Revenue Service (SARS).

In the case of retirement and retrenchment, clients may have to settle debt, and an emergency fund may be critical. In addition, if clients are retrenched, there could be uncertainty as to when they will once again be gainfully employed.

It is therefore critical to have an idea upfront of how much tax is going to be deducted from the lump sum in the fund. This calculation will leave a client with a net amount, from which it is possible to decide how much to withdraw for their immediate needs, for example, paying off debt, or sustaining a living for a couple of months.

Article: IOL

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