Most people - at least when they reach the age of 45 or older - start thinking about retirement and the possibility of receiving a nice sustainable income after they retire.

But to ensure a good income you need to start planning well ahead of retirement.

As many people belong to company-funded pension or provident funds, they normally spend little time thinking or planning for a dynamic income during retirement, as they believe they will receive the "right" income in retirement from their pension or provident funds.

New regulations that company pension and provident funds must provide default annuities for members who reach pensionable age support this belief.

The regulations mean that the company-sponsored funds must provide an option that enables a member who reaches retirement to seamlessly transfer their pensionable interest to a default living annuity or fixed annuity that provides a monthly income.

On face value, this makes a lot of sense because many people receive bad or even no advice at this critical juncture in their lives.

The problem with these potentially cheaper default options is that an investment in a living annuity requires constant good advice to ensure you maintain the appropriate asset allocation levels (the amount allocated to equities, bonds, listed property and the money markets in your investment) and a sustainable income level (your drawdown rate). Data shows that investors left to their own devices tend to migrate towards less risky assets (shares) in their portfolios and higher, unsustainable drawdown levels.

The combination results in higher capital losses more quickly than when asset allocation and income levels are appropriate, and this ultimately results in a lower income when many can ill afford it.

In retirement, people generally want as high a tax-free income as possible but when your monthly income comes from one source such as a company pension, provident fund or living or fixed annuity, it is typically fully taxable. If you want to minimise your tax in retirement, you need to start planning well before you retire.

You can still receive interest that is tax-free up to R23,800 if you are below age 65, and R34,500 if you are over the age of 65. This means you can have R340,000 in a money market or other interest-bearing fund if you are under the age of 65 and R493,000 if you are over the age of 65, and you should make the most of this tax-free income.

One of the best sources of income in retirement is simply drawing an income off your existing unit trust investments. Few people realise that the South African Revenue Service does not deem the income you derive from such a source as income. If you draw an income of R20,000 a month from your unit trust portfolio, the R20,000 is not included in your taxable income, and you may only potentially be liable for tax on the capital gain, dividends or interest you receive from the portfolio.

This is normally substantially lower than what you would be taxed on income of R240,000 (R20,000 x 12).

Another excellent source of tax-free income in retirement is to draw from a tax- free savings account. The tax incentives on these investments were instituted to entice more people to start saving.

Currently you can only invest a maximum of R33,000 a year and a total over your lifetime of R500,000.

If you start to invest in such a tax-free savings investment early in your life and allocate the investment to 100% equities (shares), you can enjoy substantial growth and compounding interest that will be a sizeable amount at retirement from which you can withdraw a tax-free income despite the R500,000 contribution limit.

Hopefully, this will get you thinking about structuring your investments for a more tax-friendly income in retirement which could save you millions in taxes over your lifetime.

• Viljoen is the CEO of Ultima Financial Planners and former winner of the Financial Planning Institute's Financial Planner of the Year award