Retiring from a retirement annuity (RA) is often treated as a box you tick at age 55. In our experience, it is one of the more permanent decisions in a retirement plan, because it changes how you can access capital, how withdrawals are taxed, and how benefits flow to your beneficiaries.
Age 55 is simply the earliest point at which most RA members may elect to retire; it is not a deadline, and there is no upper age limit. The better question is whether retiring now improves the probability of meeting your objectives, after fees, taxes, and real-world cashflow needs, rather than whether you have reached the correct birthday.
Start with the RA you actually own
The type of RA you hold matters. Older, insurance-based contracts can carry higher charges, limited investment choice, and less transparent pricing than modern platform-based RAs. If the product structure is the real problem, you may be able to modernise it without retiring by transferring to a different retirement annuity fund via the section 14 transfer process (where applicable), improving costs, reporting, and investment choice while keeping retirement-fund protections.
Regulation 28: constraint, protection, and the nuance investors miss
Regulation 28 limits concentration risk by imposing prudential asset allocation rules on retirement funds, including RAs. A living annuity generally offers wider investment choice, but the gap is often overstated: a well-constructed Regulation 28 portfolio can still be globally diversified within the prevailing limits, while retaining the governance and tax advantages of the retirement-fund environment.
Keep in mind that there may also be a legacy exception. Certain retirement annuity contracts that pre-date 1 April 2011 may be exempt from Regulation 28 unless a material contractual change is made. This means that if your RA already has the growth tilt you need, retiring purely to escape Regulation 28 may add complexity without improving outcomes.
Liquidity and the retirement lump sum: the decision that echoes
When you retire from an RA, the commutation rules generally allow a portion to be taken as a retirement lump sum, with the balance used to secure an annuity income (a living annuity or a guaranteed life annuity). In our experience, the most useful starting point is not the tax table, but your liquidity plan for the first five to ten years of retirement, including buffers for healthcare shocks and lumpy expenses such as travel or home upgrades.
For the 2026 tax year (1 March 2025 to 28 February 2026), the retirement lump sum benefit table taxes the first R550,000 at 0%, with 18% applying from R550,001 to R770,000, 27% from R770,001 to R1,155,000, and 36% above R1,155,000. These tables apply cumulatively across qualifying retirement lump sums, which means using the tax-free portion now can reduce what is available for future retirement events.
Also bear in mind that once capital is in a living annuity, you cannot later take an ad hoc lump sum – with the only exception being if the total value of your living annuity drops below R125,000, in which case investors can withdraw the full amount. This is because living annuity income is regulated within a band of 2.5% to 17.5% of the policy value per year, and you generally only adjust your drawdown annually on the policy anniversary.
Two-pot access: flexibility with consequences
The two-pot retirement system, effective from 1 September 2024, introduced a savings component that can provide limited access before retirement. One-third of new contributions are allocated to the savings component and two-thirds to the retirement component, while a once-off seed amount of up to 10% of the vested component (capped at R30,000) could be transferred into the savings component at implementation. Withdrawals from the savings component are allowed once per tax year, must be at least R2,000, and are taxed at your marginal income tax rate.
This matters because two-pot access can reduce the pressure to retire early purely to access cash, but bear in mind that every withdrawal reduces the capital that can compound inside the retirement fund environment and can create an unpleasant tax surprise if it pushes you into a higher marginal bracket.
Income needs and tax: coordination beats cleverness
Importantly, note that living annuity income is taxed as normal income, so the outcome depends on your full income picture in the same year. For the 2026 tax year, SARS reflects a tax threshold of R95,750 for individuals under 65 (with higher thresholds applying from age 65 and 75). We prefer to coordinate the timing of the retirement event, the sustainable drawdown level, and the use of other assets that can supplement income more tax-efficiently when appropriate.
Timing can be material. Retiring late in a tax year can reduce the year’s taxable earnings from work or business, while a year in which you realise a large capital gain may be a poor year to add extra taxable annuity income.
The hidden risks: longevity, sequencing, and behaviour
Remember that investment freedom does not guarantee better outcomes. A living annuity can expose you more directly to sequencing risk (poor returns early in retirement) and behavioural risk (changing strategy under stress), especially once the portfolio is funding a pay cheque. Before retiring from an RA to pursue a more aggressive strategy, it is worth stress-testing whether the plan survives market weakness, longer-than-expected lifespans, and rising health costs without forcing you into an unsustainably high drawdown.
Estate planning: certainty versus trustee discretion
While your funds remain in an RA, death benefits are distributed under section 37C of the Pension Funds Act. Trustees must identify financial dependants and make an equitable allocation, taking your beneficiary nomination into account but not being bound by it. By contrast, a living annuity is generally administered in line with your beneficiary nomination, which can provide greater certainty over who receives the benefit and in what proportions.
Retirement fund benefits are generally excluded from estate duty, which is why both RAs and living annuities remain powerful estate planning tools – although practically this means keeping nominations current and aligned with your Will and liquidity plans.
Emigration and tax residency: plan using current rules
If there is a realistic possibility that you may cease South African tax residency, build this into your sequencing before triggering irreversible steps. Since 1 March 2021, a member of a retirement annuity fund who has ceased to be a South African tax resident for an uninterrupted period of three years (and who meets the relevant requirements) may withdraw their RA benefit before normal retirement age, and SARS guidance confirms that from 1 September 2024, this access is limited to the vested and retirement components.
Reserve Bank guidance also indicates that non-residents (including individuals who have ceased to be residents for tax purposes) can transfer compulsory annuity income, including living annuity income, offshore, subject to the prescribed administrative requirements. In other words, mobility planning is possible, but it is document-heavy and highly dependent on your residency status and tax compliance position.
In our experience, the best outcomes come from treating RA retirement as a strategy rather than a birthday. Fix the product if it is outdated, map your liquidity needs honestly, and model your income and tax position across multiple years before you commit, because the goal is not flexibility for its own sake, but a retirement income plan that remains resilient when life does not go to script.
Have an amazing day.
Sue
