Navigating Retirement: Managing Expenses, Taxes, and Financial Immigration

We love it , obviously you love it , and so we get to make a good show for you . I've got one that I'm busy reading , a question that was sent through to us and it says hi , honest Money team , I'm 34 years old and my goal is to retire somewhere between age 55 and 60 , preferably closer to 55 and 60 .

My biggest uncertainties currently are taxes and at post-retirement . And then , what sort of expenses do pensioners normally have ? Currently , my list is a short one and I just want to check if there's anything that I'm missing in my list .

And then the list includes bank charges , groceries , medical aid , dstv or internet , municipal bills , prepaid electricity , car house insurance , petrol and car track . Please help with my list and what tax matters I have to deal with when I reach retirement . Thank you for the question . I haven't had that before . And it retirement . Thank you for the question .

I haven't had that before and it's a really good one actually . So let's maybe I'll talk about taxes second , but let's maybe talk about your expenses at retirement , because I think there's a lot of stuff written about retirement expenses and for me most of it is garbage In my working career . For me , most of it is garbage In my working career .

I've spent most of my time helping people build up to retirement , and then the bulk of my clients are people that are at retirement , so they already retire , and one thing my experience with them has taught me is that their expenses don't change much . The people that are in a good financial position .

If you look at their expenses in the last five years of work and you look at their expenses in the first five years of retirement , there isn't a major difference . I think what is different is that you will stop saving when you retire .

You know you're not going to be putting money into a retirement fund or your tax-free savings necessarily , because now you're living off your capital . So it doesn't make sense when you're retired to take money from your investments and then put them into new investments .

You know , rather , just draw a bit less from your investments to make sure that your capital will sustain itself , but there is no need to do new investments . So that's the one big change . And then for a lot of retirees , their kids might be another expense that disappears as they get older .

In other words , you might find that they get close to retirement and they're still helping their children financially if they're already working or if they're still at varsity or something helping them with those kinds of costs and then when their kids start working , you might find that they still subsidize medical aid for a bit or something like that .

So it's usually those expenses that might stay on when someone is at retirement and might have carried those costs before retirement . But for the balance I wouldn't budget for a very different cost set from before retirement to after .

So whatever you spend today , the likelihood is if you take out the line items for savings , that's pretty much what you're going to spend at retirement . And I know a lot of textbooks and a lot of so-called gurus will tell you that you're going to spend 60% of what you normally spend when you retire .

So if you're spending 100 , you're suddenly only going to spend 60 . And I think that's absolute hogwash . The mix of how you spend money definitely changes when you get older . So in the early days of retirement , especially if you're healthy , you might spend a bit more on travel .

You might spend a bit more on leisure stuff , and then , as you get older , especially into your late 70s , early 80s , travel becomes a pain for most people and they don't really want to go through border posts and long flights or whatever it is , and so they end up traveling less but their medical aid costs get higher and higher and higher .

So , yes , they spend less on travel , but they spend more on medical aid , and I think that that's maybe the one big point that I would make . For most people is that medical aid costs tend to grow much faster than the cost of living .

So when you're doing your budgeting and your kind of analysis for what you need for retirement , you might say that your normal cost of living will go up at 6% a year . You might say that your normal cost of living will go up at 6% a year . I think you should be budgeting that your medical aid goes up at 10% a year .

If you do that , then you can afford when you're late into retirement . You'll still be able to afford your medical aid if you've budgeted and saved correctly .

But that's probably the one that catches a lot of people is just that their medical costs get so much more than they thought and then they start to compromise on the leisure money that they had set aside , whether it's for entertainment or travel or whatever it might be .

So I would be careful of saying I spend 10,000 around a month before retirement , that I'm only going to spend 6,000 around a month after I retire . It just doesn't work out like that .

The only time you can really achieve that kind of a big reduction in costs is if you're living in a very big , expensive house in the middle of the city in a very high value area , and then you go and move to a much smaller place in a small town or something like that , because then you'll find that your municipal costs are a lot less .

If you live in a smaller house , your insurance costs will be less . If you live in a big city , especially Joburg or something like that , you might find that your insurance premiums for your cars are very high , and if you move to a small town far from a lot of people , then your insurance premiums for the same car might be a lot less .

So I think that it could be stuff like that where your costs will go down a little bit . But we're not talking about a 20% reduction in your whole monthly expenses . We're talking about a few thousand rand , you know , in a relatively big budget , and you know .

So I think , be careful that you kind of aim to stop work at age 55 and then you plan for your worst life rather than your best life , and maybe the one thing to think about is I mean , I see you put that with a smile to say that you'd like to stop at 55 instead of 60 .

I would be going hard as a goal at financial freedom , and if you reach financial freedom at 55 , the very last thing I would do is stop working of my own and dealing with clients , people that stop work at 55 and just kind of sit back . They're not happy when you talk to them at age 60 or 65 .

One of the things we need to know is we need to live a life of purpose , and putting effort and work into something that gives meaning to our lives is very valuable . It makes us better human beings . It makes us better spouses , potentially better parents or grandparents .

So you need to stay sharp , you need to keep your brain very active and I think work is very valuable , being able to kind of work because you want to , because you've reached financial freedom , changes your whole dynamic around , your attitude to work .

If you're working from a position of choice , from a position of financial strength , you find that you just generally enjoy the jobs more and you might change jobs and do something that earns you less money and that's fine because you've achieved financial freedom . But I wouldn't want to stop working at 55 .

If you've really made it , if you've saved a lot of money and you've built up a big portfolio and you've got excess capital where you never actually need to work again , the one idea might be that you commit time to some charity work , do something where you take on the responsibility of being the chairperson of a charity school or go and run an animal shelter

and go and commit time to something like that . But you need to give yourself a lot of kind of mental stimulation . You need to deal with lots of different kinds of people . If you retire and you move yourself to a retirement village , you're dealing with retired people all day long and so your mental stimulation is going to be very limited .

So one of the things we need to realize about work is we deal with young people , we deal with old people , we deal with men , women , we deal with different race groups , different cultures , different educational backgrounds , and that's very stimulating for our brain and it kind of keeps us alive and keeps us young .

So , whatever you do , if you hit 55 and you've got financial freedom , please keep active and please keep working , because you know otherwise you're going to live a very unhappy , unsuccessful retirement life .

Then we got , you know , kind of a list of questions from Angela and so she asked you know if we can talk a little bit more about the financial consequences of immigrating ? I'm going to deal with that one first and we'll get to the others if we have enough time . So yeah , immigrating is a big step , you know .

I think you kind of need to break that down into a few portions . One , that when you leave South Africa you can change countries . In other words , you can get on a plane and go and work in Dubai , but you could still maintain your tax residence in South Africa if you want to .

So that becomes a choice that you can make , and if you do that , that means you haven't financially immigrated . What you've done is you're not earning taxable income in South Africa , you are earning income in another country and there are some tax implications to that . I'll speak about that now .

But you haven't formally immigrated , so you've kept your passport , you've kept your tax status in South Africa . You're still obliged to complete tax returns , even if you're not necessarily going to be paying a lot of tax on your income , but you haven't changed your tax status and for a lot of people I would suggest that that's the first thing that you do .

If you are going to go to another country , don't formally immigrate and change status unless you absolutely have to . But if you've got a choice , rather go and test drive that new country , go and move there and go and work there . And if you've got kids , put them in the schools and give it a go . But don't necessarily financially immigrate .

And the reason for that is two . When you change countries , some people arrive in a new place and they're really happy wherever they are . Their land takes a bit of disruption to themselves and their families , but they settle down and they find themselves happy in their new home . Immigrate out of South Africa .

But there are a lot of people who will land up in a new country and find themselves really unhappy and even if they give it a year or two to try and make it work . You find that they're just not happy , it's just not home for them .

And so if they've formally immigrated and they're financially immigrated as well , then it means that they are no longer taxpayers in South Africa , they're citizens of another country . And now they've got to try and undo that and get back into South Africa and that could be an absolute nightmare .

So I think you know you don't want to kind of make a huge , drastic move and then have to undo everything and a lot of people find themselves in that unhappy position .

I've met lots of people where they've kind of tried out Australia and they've been in Australia for three months and the husband got really sick and the medical care was terrible , and they find themselves back in South Africa , you know , in the great medical care here , and the container with all their lively , all their worldly goods is still on the ship on its

way to Australia and that's a real mess . So I think you know , just be careful with that . And then the second reason is that when you financially immigrate , let's say you've got , you know , a million rands worth of investment assets already sitting overseas and you're a South African taxpayer and you financially immigrate .

The day you immigrate and that's not when you change countries , in other words , it's not when you get on the plane , it's when you tell SARS that you are now financially immigrating they will treat those assets as if you've sold them . In other words , it's a capital gains tax event .

So it means that they're going to look at all of your assets If you own a business , if you own a house , if you own overseas shares and they're going to say you've sold all of those assets and you now owe us our capital gains tax . That's a big cash flow surprise that a lot of people don't plan for .

So there are very real consequences to financial immigration , and so for me , I think you know , I would say you know before you do that you know you want to kind of spend quite a bit of time , angela , with a tax person , understand the consequences of just going to live in another country for a period of time .

And then you know , understand the financial implication of actually formally immigrating , and I'm not sure I would do the financial immigration , you know , for quite some time . If you do immigrate , the one thing to know is that the law is now a bit more clear around your retirement funds .

So once you've formally immigrated , you can access your retirement funds , but only after three years and again , get proper tax advice . This is honest money . We cover a lot of stuff , and I'll tell everybody that will listen that tax is not my strong point , so make sure that you get proper tax advice before you do anything like that .

Angela's next question , which is kind of a little bit on a similar theme , was asking how she can invest in a foreign stock market like Super Saver Julia who invested in the MSCI World Index via the French Stock Exchange .

Angela , I think we've learned some great lessons from Super Saver Julia over the years , but we should be careful to copy everything that she's done . Her connection to France is very specific to her and if she didn't have French now family , I mean it's very unlikely she would have put that money in an account in France . It most likely would have gone elsewhere .

So I think the range of options available to a South African who wants to buy global investments is huge .

So most of the big unit trust companies , most of the big investment platforms , will offer dollar , pound and euro denominated investments as well , so you don't need to go too far to kind of find very high quality index tracking or actively managed investments that are offered by the South African fund managers , and those are proper offshore investments .

In other words , you're going to put the money into a world general equity fund and if you want to take that money out one day and you happen to be living in the UK , you can change your FICA so that you tell your offshore platform that you're now a resident in the UK and you give them your updated banking details .

They can sell that general equity fund and pay it to your bank account in the UK . And you give them your updated banking details , they can sell that general equity fund and pay it to your bank account in the UK or wherever else you may be .

So I think putting money in a very specific place , like in France or anywhere in mainland Europe , doesn't make sense to me because of tax . We've got to be very careful that we don't pay double taxes .

So when you're in South Africa , you get taxed on your worldwide income and your worldwide assets , so you don't want to pay tax twice and that means that you should rather have investments that are domiciled , is the jargon but domiciled in Ireland or the Guernsey , jersey , isle of man or Switzerland , maybe Luxembourg as well , but what you don't want to do is buy

investments that are domiciled in America or in the UK or mainland Europe , because you could end up paying double taxes and , especially on death , you could end up paying as much as 40% estate duty , whereas in South Africa you might at worst pay 25% , and to me that just doesn't make sense .

So be very careful of just replicating exactly what everyone else has done . Thanks so much , angela . We'll get to some of your other questions in the future and for everyone else really appreciate it when you send us questions . Please keep them coming .