15 Sep 2026
Good investment returns are only part of a successful retirement plan. Where your assets are held and where you draw your income from can also materially affect your long-term outcome.
In our latest webinar, Stuart Dyer and Jannie Smit use a retirement case study to demonstrate how relatively small structural changes can greatly improve tax efficiency, offshore structuring and estate outcomes.
Let’s talk Retirement
At Investonline, we work closely with clients to understand how their retirement products are structures, and whether their portfolios are optimised for tax-efficiency.
Discovery
Share details
Planning
Discuss goals
Analysis
Review position
Scenario Background
The webinar examines a retired couple, John (68) and Jane (65):
- Total Wealth: R35 million across property, living annuities, cash fixed deposits, unit trusts, direct foreign shares, and an unused retirement annuity.
- Income Need: R1.2 million per year (net of tax).
- The Problem: The couple suffered an annual income shortfall of R228,000. Almost all investments and income drawings were loaded onto John, who was paying an effective 30.6% tax rate. Additionally, R10 million sat in a fixed deposit, generating high taxable interest income, while his direct US shares exposed his estate to severe foreign inheritance taxes.
What Was Done: Step-by-Step Restructuring
1. Activating the Unused Tax Allowance
- Action: Jane held an unused R3 million retirement annuity. The team converted this into a living annuity drawing 5.1% (R153,000 per year).
- Impact: Because Jane is 65, this income fell right within her individual tax-free allowance, meaning she pays R0 tax on it. By taking this portion of income off John’s high-tax tab, the couple saved roughly R71,000 a year in income tax.
2. Repositioning Heavy Cash Reserves
- Action: John’s R10 million cash fixed deposit was generating high taxable interest. The advisors split this cash into two strategic allocations:
- R5 million into a new Retirement Annuity: This was immediately converted into a living annuity. Under tax rules (Section 10C), this lump-sum contribution created a R4.7 million pool of “excess contributions”. This pool grants John an exemption on his annuity income tax, essentially giving him tax-refunded income for over seven years.
- R5 million directly offshore: Moved into an offshore investment structure.
3. Optimising Product & Asset Location
- Action: Instead of leaving interest-bearing cash in personal accounts where it is taxed heavily, interest-earning assets were shifted into the tax-sheltered living annuity. Growth assets (like stock equities) were placed in discretionary accounts where capital gains are taxed at much lower rates only upon sale.
4. Shielding Global Wealth from Foreign Inheritance Tax (US Situs)
- Action: John held R5 million in direct US-listed shares. Direct holdings over $60,000 trigger US estate tax (Situs) of up to 40% upon death, along with expensive foreign executor fees.
- Impact: Moving these assets into an offshore investment wrapper (endowment) legally transferred ownership to an institutional wrapper. This completely eliminated the 40% US tax risk, removed foreign legal delays, and allowed the naming of direct beneficiaries to bypass local executor fees.
The Final Outcome
By adjusting the portfolio structure without altering the underlying investment growth assumptions, the restructure delivered:
- Annual Tax Savings: Reduced out-of-pocket tax by ~R430,000 every year.
- Estate Cost Reductions: Cut potential executor fees, estate duty, and capital gains taxes on death by ~R2.3 million.
- Long-Term Wealth Preservation: Projected to leave the couple with R9.2 million more capital by age 88.
Questions and Answers
Questions were sent in before the webinar, addressed in the webinar and provided below:
Question 1: When retired and receiving a monthly income from a living annuity, would it be worthwhile to draw from our discretionary funds to buy additional retirement annuities in order to reduce my total taxable income and tax liability?
It depends on your overall liquidity needs. Withdrawing discretionary funds may trigger a capital gains tax event, and any income subsequently drawn from the new retirement annuity will still be fully taxable as income. You must first ensure you retain sufficient accessible liquidity for capital expenses (e.g., vehicle purchases or travel) before locking funds into a retirement structure.
Question 2: Please cover Section 10 scenarios where you can take a larger tax-free amount than R550,000 and explain how the Section 10 credit is dealt with if you do not take a lump sum. Is there a pecking order for using it up?
Excess contributions recorded by SARS can be taken tax-free on top of the standard R550,000 retirement lump sum allowance. If you do not take a lump sum, rolling the excess contributions into a living annuity allows SARS to shield your drawn income from tax until that excess pool is completely exhausted. If you pass away with remaining excess contributions, beneficiaries can take them out tax-free as a cash lump sum; however, if they transfer the living annuity into their own name, the tax exemption falls away.
Question 3: If I inherit a sizable amount of money, what is the most tax efficient way of investing it, assuming I’ve already maximised my retirement annuity contributions and need the money to remain easily accessible?
Allocate the inheritance across different structural pillars based on accessibility. Use a discretionary unit trust to maintain short-term access and support regular income needs, and place the remaining portion into an offshore wrapper (endowment) to optimise tax efficiency and estate planning for long-term capital.
Question 4: What tax decisions can you make before retirement that will enable a more tax efficient retirement and what decisions only need to be made when you retire?
Before retirement, focus on building non-pension investment buckets (such as tax-free savings accounts and direct offshore investments) so that your retirement income does not rely entirely on fully taxable retirement funds. At retirement, focus on structural execution, such as converting cash reserves to living annuities under Section 10C or optimising asset locations across accounts.
Question 5: How should my investments be structured across retirement funds, discretionary investments and tax free savings accounts to minimise my overall tax burden in retirement?
Theres is no fixed formula, as structure depends on your specific goals, required liquidity for large capital items, and estate wishes. A proper plan requires balancing your retirement, discretionary, and offshore pillars to align growth assets and income-generating assets with their most tax-effective vehicles
Question 6: Are endowment policies an effective tax minimising instrument for estate planning and retirement?
Yes, provided your marginal income tax rate is 31% or higher. Endowments (wrappers) cap capital gains tax at an effective 12% and interest tax at 30% (or a flat 12% for offshore wrappers). They also allow you to nominate direct beneficiaries, which bypasses executor fees and avoids multi-year estate freezing.
Question 7: What estate planning and beneficiary strategies can help preserve wealth and reduce taxes for my heirs while maintaining sufficient retirement income?
Offshore wrappers allow beneficiaries to inherit the investment directly without triggering an immediate capital gains tax event, allowing the portfolio to continue compounding. For living annuities, evaluate how your heirs will access the funds upon death, as keeping the annuity can expose them to income tax up to 45%, while withdrawing it can incur tax rates up to 36%
Question 8: How does an offshore portfolio holding US equities affect estate duty?
Directly holding US-listed equities or ETFs exceeding $60,000 exposes your estate to US estate tax (Situs) of up to 40%, with no automatic spousal rollover exemption. It also requires hiring foreign probate executors who charge hourly fees in foreign currency. Holding those same global assets inside an offshore wrapper legally eliminates US Situs exposure and foreign probate delays.
Question 9: Do you have a tax evaluation service and is there an additional cost attached to it? I’m looking for a financial advisor who can assist me with my retirement tax strategy.
Yes, Investonline provides portfolio tax evaluation as part of their standard financial planning process at no separate fee. The process involves an initial meeting to establish your goals, followed by a full financial plan to restructure your assets and optimise tax efficiency both during retirement and upon death.
