Why Inflation Matters in Retirement
Inflation is one of the biggest threats to your retirement income. As prices rise over time, your money loses value. What R1 000 buys today might only buy R600 worth of goods in 15 years.
If your income doesn’t grow with inflation, your quality of life could decline. That’s why protecting your buying power is so important.
A Living Annuity gives your retirement money the potential to grow over time. It keeps your savings invested while providing flexible income. This can help you stay ahead of inflation if managed well.
What Is a Living Annuity?
A Living Annuity is a retirement product that turns your savings into income while keeping your money invested. It’s available to South Africans who retire with savings in a pension, provident, preservation or retirement annuity fund.
You can withdraw between 2.5% and 17.5% of your investment value each year. You also choose where your money is invested, including local and offshore options, and how often you receive income.
If your investments perform well and your drawdown is sustainable, your capital can grow even in retirement.
The Inflation Challenge
The challenge in retirement isn’t just drawing an income — it’s making sure that income keeps up with rising costs. If your investment returns are lower than your combined inflation, fees and withdrawals, your capital will shrink.
This is where a simple equation can help:
Withdrawals + Fees + Inflation ≤ Investment Return
If the left side of the equation stays below the right, your money has a better chance of lasting.
How to Protect Your Income
Here are four steps to help you stay ahead of inflation:
1. Start with a low drawdown
A drawdown of 4% or less is often considered a safe starting point. Taking more increases the risk of running out of money.
2. Review annually
Monitor your performance, drawdown and asset allocation every year. Make adjustments as needed.
3. Diversify your investments
Use a mix of local and offshore assets. Equities support long-term growth, while bonds and cash offer short-term stability.
4. Keep fees low
High fees reduce your returns and compound over time. Lower fees help your money grow and last longer.
What Happens When You Pass Away?
With a Living Annuity, any money left when you pass away goes to your nominated beneficiaries.
They can:
- Take a lump sum
- Continue the annuity in their name
- Or combine both options
The funds don’t form part of your estate and are not subject to estate duty.
Is a Living Annuity Right for You?
Living Annuities are a good fit for people who:
- Want to manage their investments
- Are comfortable with some market risk
- Would like to leave money to their family
- Have other income to cover basic living costs
If you prefer a guaranteed, fixed income and don’t want to worry about markets, a Life Annuity might suit you better.
In Summary
Inflation is a long-term threat to your retirement lifestyle. A Living Annuity gives you the flexibility to grow your income and protect your buying power — but it requires careful planning.
Start with a sustainable drawdown, keep fees low, invest for growth, and review your plan regularly. Speak to a licensed financial adviser to find the right annuity for your goals and request a personalised Living Annuity comparison report.
