The Meaning of a Living Annuity

May 14, 2025 By: Alfred0 comments

What is a Living Annuity?

A Living Annuity is a flexible retirement income product available to South Africans who want to turn their retirement savings into regular income while keeping their money invested.

Instead of locking into a guaranteed monthly income for life like with a Life Annuity, a Living Annuity gives you the freedom to decide how much income to draw each year and how your capital is invested.

This makes it popular among retirees who want more control, more growth potential and the ability to leave an inheritance.

How Does It Work?

When you retire, you can use your Pension, Provident, Preservation or Retirement Annuity savings to buy a Living Annuity. You withdraw up to one-third of your capital as a lump sum, then invest the rest into your Living Annuity.

Each year, you choose an income level between 2.5% and 17.5% of your investment value. Your money remains invested in local and offshore funds, and you have full control over where it goes.

If markets do well, your capital can grow. If they don’t, your investment may shrink.

Living Annuity Meaning in Practice

In short, the meaning of a Living Annuity lies in its flexibility. You stay in charge of your money. You get to decide how much income to take, and you choose the funds your money is invested in.

Unlike a Life Annuity, there’s no guarantee the money will last, but you do have a chance for growth, inheritance and better tax control.

Who Should Consider a Living Annuity?

A Living Annuity suits people who:

• Want to control their own investments
• Are comfortable with some market risk
• Want to leave remaining capital to loved ones
• Have other income sources to help cover basic needs

It’s not for everyone. If you want predictable income and don’t want to worry about markets, a guaranteed Life Annuity may be a better choice.

What Are the Main Risks?

There’s no fixed income and your money can run out. Some key risks include:

• Market risk – Bad returns early on can reduce how long your money lasts
• Longevity risk – Living longer than expected can increase the chance of running out
• Behavioural risk – Drawing too much or switching investments poorly can harm your plan

That’s why it’s important to start with a sustainable drawdown rate and monitor performance.

Best Practices to Make Your Living Annuity Last

• Start low – a drawdown rate of 4% or less is often considered safe
• Review yearly – adjust drawdowns and portfolios as needed
• Diversify – include a mix of growth and income assets, local and offshore
• Keep fees low – high fees can quietly erode long-term returns

Use Our Living Annuity Calculator

Not sure how long your money will last? Try our Living Annuity Calculator to explore how different drawdown rates, returns and fee levels affect your future income.

What Happens to My Living Annuity When I Die?

Any remaining funds in your Living Annuity go to your nominated beneficiaries. They can either take a lump sum, continue the annuity in their name or combine both options. The money does not form part of your estate and is not subject to estate duty.

In Summary

The meaning of a Living Annuity is simple: flexibility and control in retirement. But with that control comes the responsibility to manage your investment wisely.

It offers growth potential, the ability to leave an inheritance and more tax flexibility—but you must plan carefully and review often.

Speak to a qualified financial adviser and get a free Living Annuity comparison report to make sure you choose the right product and provider for your retirement goals.

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