When you retire, your savings need to start working for you. In South Africa, two main options for turning retirement savings into income are Living Annuities and Guaranteed Annuities.
Each offers a different balance of risk, control, and predictability.
Here’s a breakdown of how they work and how to decide which one might suit you better.
A Living Annuity keeps your capital invested, and you decide how much income to draw each year. You choose your investments and adjust your drawdown annually, anywhere from 2.5% to 17.5%.
Your income depends on how well your investments perform, which means it can grow—but it can also shrink.
A Guaranteed Annuity, also called a Life Annuity, works more like insurance. You pay a lump sum to an insurer, and they pay you a fixed income for life. You don’t manage the investment or take on market risk—but you also don’t have flexibility or access to your capital.
Why Investors Choose Living Annuities
Control and Flexibility You choose your investments and can adjust your income each year. This gives you the ability to respond to market conditions and changing personal needs.
Growth Potential Your money stays invested, so you benefit if markets perform well. Over time, this could help your income keep up with inflation.
Estate Planning Any money left over when you pass away can go to your beneficiaries. A Living Annuity doesn’t form part of your estate for tax purposes.
Offshore Exposure You can invest up to 100% offshore—unlike pre-retirement funds that are capped. This helps diversify and reduce local market risk.
Why Others Prefer Guaranteed Annuities
Predictable Income Your monthly payout never changes (unless you choose an inflation-linked option). It’s ideal for people who want certainty.
No Market Risk The insurer carries the investment risk. Your income isn’t affected by market downturns.
Lifetime Security Your income is guaranteed for life—even if you live longer than expected.
Understanding the Trade-Offs
Living Annuities offer flexibility and growth potential—but come with more responsibility and risk. You manage your investments and must monitor drawdowns, fees, and returns to avoid running out of money.
Guaranteed Annuities are simpler and safer, but they give up flexibility. You won’t benefit if markets rise, and there’s typically no capital left for heirs.
How Inflation Affects Both Options
With a Living Annuity, your returns need to beat inflation to maintain your buying power. That means including growth assets like equities in your portfolio and reviewing your drawdown regularly.
With a Guaranteed Annuity, you can choose an income that increases with inflation. However, inflation-linked options usually start with lower initial payouts compared to fixed ones.
How to Build a Strong Living Annuity Portfolio
A well-balanced mix of equities, bonds, cash, and possibly property is essential. Your allocation should reflect your goals, risk comfort, and time horizon.
More equities may make sense early in retirement when you still need growth. As you age or become more conservative, you might shift toward income assets like bonds.
You can also invest globally, which adds diversification and reduces exposure to local market risk.
Guaranteed Annuity Portfolios Are Managed for You
With a Guaranteed Annuity, the insurer handles the investment side. You don’t get to adjust or choose the underlying portfolio—but you also don’t have to worry about managing it.
Choosing a Sustainable Drawdown
With a Living Annuity, you set your drawdown annually. A 4% drawdown is often considered sustainable, especially if markets perform well. Lower is better if you want to preserve capital.
With a Guaranteed Annuity, there’s no drawdown decision—your income is paid automatically for life.
Which One is Right for You?
You might prefer a Living Annuity if you:
Want to stay in control
Are comfortable with some market risk
Have other income sources
Want to leave something behind
You might lean toward a Guaranteed Annuity if you:
Want to see how your income could hold up over time? Use our Living Annuity Calculator to model drawdown rates, returns, inflation and fees—and understand what it means for your capital.
In Summary
Both Living and Guaranteed Annuities have a place in retirement planning. The right choice depends on your goals, comfort with risk, and need for flexibility. Many retirees even combine the two for balance: a Guaranteed Annuity for stability, and a Living Annuity for flexibility and growth.
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