A Living Annuity is a retirement income product that allows you to draw a regular income while keeping your savings invested.
Unlike a guaranteed annuity, a Living Annuity gives you flexibility over your drawdown rate (between 2.5% and 17.5% annually) and investment choices.
This flexibility brings both opportunity and responsibility. The way you invest and withdraw affects how long your money lasts.
Key Considerations When Investing
- Drawdown rate: How much income you withdraw each year
- Investment returns: How your underlying investments perform
- Inflation: The rate at which your purchasing power decreases
- Fees: Costs that reduce your net returns
These factors must be balanced carefully to keep your income sustainable.
The Golden Equation: A Retirement Guideline Use this equation to assess the health of your strategy:
Investment Returns ≥ Inflation + Fees + Drawdown
This formula helps determine whether your capital will grow, remain stable, or shrink over time.
Planning Your Asset Allocation The way you structure your investments matters. A good portfolio includes a mix of assets:
- Equities: Higher growth potential but more volatility
- Bonds: Steady income with moderate risk
- Cash or money markets: Stability and liquidity
- Property and offshore exposure: Diversification and inflation protection
Example Strategies:
- Conservative: Lower equity exposure, more bonds and cash
- Balanced: A mix of equities, bonds, and property
- Aggressive: Higher equity allocation for long-term growth
Understand Your Risk Tolerance Your comfort with market ups and downs affects your strategy:
- Low risk tolerance: Choose more stable, income-focused assets
- Moderate risk: Balanced approach with some growth exposure
- High risk: Focus on equities and global diversification
Make sure your investments match your personality, goals, and timeline.
Think About Time Horizon Living annuities are designed to last for 20–40 years. If you’re retiring at 60, you may need income into your 90s. That makes it important to include growth assets early on and adjust over time.
Drawdown Discipline Setting a reasonable drawdown rate is key. General guidance:
- Aim for 4% or less to preserve your capital
- Adjust based on market conditions
- Review it annually
Factors that affect your drawdown choice:
- Life expectancy
- Other income sources
- Market performance
- Inflation impact
Build a Diversified Strategy Retirees often underestimate the value of a well-diversified portfolio. Make sure your asset mix can withstand market volatility and still generate income.
Common Pitfalls to Avoid
- Going too conservative too early, missing growth
- Withdrawing too much too soon
- Not reviewing your plan regularly
Use Our Tools to Plan Better Try our Living Annuity Calculator to model your income, drawdown rate and portfolio options. It can help you visualise how long your capital might last.
In Summary Living annuities offer freedom and control—but they require careful planning:
- Choose a sustainable drawdown rate
- Match your investments to your risk and time horizon
- Diversify for growth and stability
- Keep an eye on inflation and fees
With the right strategy and regular reviews, your Living Annuity can support your retirement goals for decades. Need help? Speak to an Investonline adviser for a personalised strategy and free Living Annuity comparison report.
