A living annuity allows you to keep your retirement savings invested while drawing a regular income after retirement.
You choose how the money is invested and select an annual income within the permitted range. This gives you greater flexibility than a guaranteed life annuity, but it also means that investment returns, inflation, fees, withdrawals and how long you live all affect how sustainable your retirement income may be.
For South African retirees, the key question is therefore not simply “Which living annuity should I choose?”
It is:
“How do I turn my retirement capital into an income that can potentially support me for the rest of my life?”
Here is what you need to know.
Quick answer: What is a living annuity?
A living annuity is a post-retirement investment that allows you to:
- keep qualifying retirement capital invested;
- choose your underlying investments;
- draw an annual income of between 2.5% and 17.5% of the investment value;
- review your income percentage annually; and
- nominate beneficiaries to receive any remaining capital when you die.
Unlike a life annuity, your income is not guaranteed for life.
That means you carry the risk that poor investment returns, high withdrawals, inflation or excessive fees could reduce the capital available to fund your future income.
1. How does a living annuity work?
When you retire, qualifying retirement savings can be transferred into a living annuity.
The capital is then invested in a portfolio that may include assets such as:
- South African shares;
- global equities;
- bonds;
- income funds;
- cash; and
- multi-asset investments.
You select an annual income from the portfolio and the balance remains invested.
This creates two objectives that must work together:
Income today
Your living annuity needs to provide enough money to fund your current expenses.
Growth for tomorrow
The remaining portfolio needs enough long-term growth potential to support future withdrawals and help offset inflation.
Focusing only on current income can damage long-term sustainability. Focusing only on investment growth can expose you to more risk than you can comfortably tolerate.
A successful living annuity strategy therefore needs to balance income, growth and risk.
2. What are the living annuity rules in South Africa?
The most important rule is the amount of income you can draw.
Living annuity investors must currently select an annual income of between 2.5% and 17.5% of the value of the living annuity assets.
The income percentage can generally be reviewed once a year on the anniversary of the policy. ASISA confirms both the current drawdown range and annual review framework.
Can you cash out a living annuity?
Normally, you cannot simply withdraw the entire investment whenever you choose.
However, from 1 March 2026, the amount below which a qualifying living annuity may be fully commuted increased from R125,000 to R150,000.
This is an important recent change because some older information online still refers to the previous threshold. SARS confirms the R150,000 threshold applies from 1 March 2026.
3. How much can you withdraw from a living annuity?
The legal range is 2.5% to 17.5%, but the amount you can withdraw and the amount you should withdraw are not necessarily the same.
A 10% drawdown provides twice as much initial income as a 5% drawdown.
But it also removes capital twice as quickly before investment returns are considered.
This is why choosing a living annuity income should begin with a retirement plan rather than simply choosing the highest income the rules allow.
4. What is a sustainable living annuity drawdown rate?
There is no single sustainable drawdown rate that applies to everyone.
Your appropriate income depends on factors such as:
- your age;
- retirement capital;
- expected longevity;
- living expenses;
- inflation;
- investment strategy;
- other income sources;
- fees
- whether leaving capital to beneficiaries matters to you.
ASISA reported that the average living annuity drawdown rate was 5.6% during 2024, down from 6.6% the previous year.
That figure provides useful context, but it should not be treated as a recommended rate.
A 5.6% drawdown may be comfortable for one retiree and too high for another.
Why high drawdowns matter
Suppose you withdraw 8% of your portfolio each year.
If the portfolio earns less than the amount being withdrawn after fees and inflation, you begin consuming capital.
As the capital falls, maintaining the same rand income requires an increasingly high percentage of the remaining portfolio.
This can create a difficult cycle:
less capital → higher effective drawdown → less capital available to grow → increasing pressure on future income.
Market timing matters too
Poor investment returns early in retirement can be particularly damaging because you are simultaneously withdrawing money from a falling portfolio.
This is known as sequence-of-returns risk.
It is one reason a retirement strategy should consider not only long-term expected returns, but also how income will be funded during difficult markets.
Planning for retirement?
Use the Investonline Retirement Calculator to see how your current savings, retirement age, income needs and assumptions could influence your future retirement income.
Testing different scenarios can help you understand the effect of retiring earlier or later, changing your income needs or adjusting your savings assumptions before making permanent retirement decisions.
5. How should a living annuity be invested?
Retirement does not necessarily mean your investment horizon has become short.
Someone retiring at 60 or 65 may still need their capital to support them for 20, 30 or more years.
That creates an important balance.
Being too conservative has risks
Holding too much in cash or very low-growth investments may reduce short-term volatility, but it can also make it difficult for the portfolio to keep pace with:
- inflation;
- withdrawals; and
- fees.
Over several decades, inflation can significantly reduce the buying power of retirement income.
Taking too much risk also has consequences
An excessively aggressive portfolio can experience large short-term losses.
If those losses occur while you are withdrawing income, the impact on future sustainability can be significant.
The appropriate portfolio therefore depends on your:
- income requirement;
- investment horizon;
- tolerance for losses;
- other assets and income;
- offshore exposure;
- liquidity needs; and
- overall retirement strategy.
The objective should not simply be to achieve the highest possible return.
It should be to achieve the return you need while taking a level of risk you can reasonably tolerate.
6. How is a living annuity taxed?
A living annuity has different tax treatment from an ordinary discretionary investment.
Investment returns generated within the living annuity are not generally taxed in your hands each year in the same way as interest, dividends and capital gains earned in a normal investment account.
However, the income paid to you from your living annuity is taxable income.
SARS includes annuities and pension income as forms of taxable income, and PAYE may be deducted from annuity payments. Your ultimate tax liability depends on your total taxable income and personal circumstances.
This becomes particularly important if you receive income from several sources, such as:
- more than one annuity;
- employment;
- rental property; or
- other taxable investments.
Your living annuity should therefore be considered as part of your overall after-tax retirement income, not in isolation.
7. Living annuity vs life annuity
One of the biggest retirement decisions is whether to choose a living annuity or a life annuity.
A living annuity may appeal to retirees who want greater investment control, income flexibility and the possibility of leaving remaining capital to beneficiaries.
A life annuity may be more attractive to someone who values certainty that an agreed income will continue regardless of how long they live.
It does not always have to be one or the other.
Some retirees may use a combination, with guaranteed income covering essential expenses and other capital remaining invested in a living annuity.
8. What happens to a living annuity when you die?
Unlike some forms of guaranteed annuity, a living annuity can retain a capital value.
You can nominate beneficiaries to receive that remaining value when you die.
Depending on the circumstances and applicable tax rules, beneficiaries may generally have options that include:
- receiving an annuity;
- taking a taxable lump sum; or
- using a combination of the two.
This makes beneficiary nominations an important part of managing a living annuity.
They should be reviewed after significant life changes such as marriage, divorce, births or deaths in the family.
9. What are the main advantages and risks?
Potential advantages
A living annuity can offer:
- control over your investment portfolio;
- flexibility over your annual income;
- long-term investment growth potential;
- access to local and global investments;
- the ability to change investment strategy; and
- the potential to leave remaining capital to beneficiaries.
Important risks
The same flexibility comes with responsibility.
The main risks include:
- Longevity risk
You may live considerably longer than expected.
- Drawdown risk
Withdrawing too much can reduce future income sustainability.
- Investment risk
Returns are not guaranteed.
- Inflation risk
Your income needs may rise over time.
- Sequence risk
Poor market returns early in retirement can have a disproportionate effect.
- Fee risk
Higher ongoing costs reduce the returns available to support future income.
These risks interact.
A high drawdown becomes more dangerous when investment returns disappoint. Weak returns become more damaging when fees are high. Inflation is harder to manage when the portfolio has insufficient growth.
A living annuity should therefore be viewed as a retirement-income strategy, not merely an investment product.
10. Who is a living annuity suitable for?
A living annuity may suit you if you:
- want control over how your retirement capital is invested;
- have sufficient capital relative to the income you require;
- are comfortable with investment-market fluctuations;
- want flexibility over your retirement income;
- have other income or assets that provide additional financial resilience;
- value the ability to leave remaining capital to beneficiaries; and
- are prepared to review the strategy regularly.
You should be more cautious if you need a very high income relative to your capital or if certainty of income for life is your overriding priority.
Ultimately, the product should fit your retirement plan — not the other way around.
Frequently asked questions about living annuities
What is the minimum living annuity drawdown?
The current minimum annual drawdown is 2.5% of the living annuity value.
What is the maximum living annuity drawdown?
The maximum annual drawdown is 17.5%. However, the maximum legal withdrawal should not be confused with a sustainable retirement-income rate.
Can a living annuity run out of money?
Yes. A living annuity does not guarantee income for life. If withdrawals, inflation and fees consistently exceed sustainable investment returns, the capital can decline substantially.
Is living annuity income taxable?
Yes. Income you receive from your living annuity forms part of taxable income.
Can I cash out a living annuity?
Generally not whenever you choose. However, from 1 March 2026, the prescribed amount below which a qualifying living annuity may be fully commuted is R150,000.
Is a living annuity better than a life annuity?
Neither is automatically better.
A living annuity offers greater flexibility and investment control but leaves you carrying more investment and longevity risk. A life annuity generally provides greater certainty of lifetime income but less flexibility and control over the capital.
The bottom line
A living annuity gives you significant flexibility over how your retirement money is invested and how much income you draw.
But that flexibility comes with an important responsibility: your capital needs to support both today’s income and tomorrow’s retirement needs.
Three decisions matter particularly:
1. How much are you withdrawing?
2. How is the remaining capital invested?
3. Is the strategy still sustainable if markets disappoint or you live longer than expected?
Those questions should be reviewed throughout retirement, not only when the living annuity is first opened.
Want a second opinion on your existing investments?
Request an Investonline Investment Health Report to review your portfolio’s costs, performance and advice and identify areas that may deserve closer attention.
A review can be particularly useful if your living annuity has been in place for several years, your income needs have changed or you are uncertain whether your current portfolio remains appropriate.
