The first few years of retirement can shape the success of your Living Annuity for decades.
This is when many retirees make important decisions about income, investment risk, spending habits and portfolio structure. Some of these decisions may feel small at the time, but they can have a lasting impact on how long your retirement capital lasts.
A Living Annuity gives you flexibility. You choose how your money is invested, how much income you draw, and how often you receive that income. But that flexibility also comes with responsibility. Unlike a guaranteed annuity, a living annuity does not guarantee your income for life.
Your capital remains invested, which means your future income depends on your drawdown rate, investment performance, fees and how long you live.
In South Africa, Living Annuity policyholders generally need to select an income drawdown of between 2.5% and 17.5% of the value of their living annuity assets, and this can usually be reviewed once a year on the policy anniversary date.
ASISA confirms that a living annuity does not guarantee regular income, and that policyholders must choose a drawdown within this range.
That range may look simple, but choosing the right income level is one of the most important retirement decisions you will make.
Below are some of the most common living annuity mistakes retirees make in the first five years of retirement and how to avoid them.
1. Drawing Too Much Income Too Soon
One of the biggest Living Annuity mistakes is choosing a drawdown rate that is too high in the early years of retirement.
It is understandable. Retirement often comes with new expenses: home improvements, travel, helping children or grandchildren, medical costs, or simply adjusting to a new lifestyle. Drawing a higher income can feel like the easiest way to maintain your standard of living.
The problem is that a high drawdown rate can place pressure on your capital, especially if markets are weak in the early years of retirement. If your investments fall while you are also withdrawing income, your portfolio has to work harder to recover.
For example, drawing 10% or 12% a year may provide more income now, but it can significantly reduce the amount of capital available to generate income later. The higher the income you draw, the higher the investment return you may need just to maintain your capital.
A good question to ask is not only:
“How much income can I take?“
But rather:
“How much income can I take without putting my future retirement income at unnecessary risk?”
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2. Treating the Maximum Drawdown as a Target
The maximum drawdown rate is not a recommendation.
The fact that a living annuity allows you to draw up to 17.5% a year does not mean that this is suitable for most retirees. In many cases, drawing near the upper end of the range can quickly reduce retirement capital.
The 17.5% limit exists as a maximum, not as a sustainable income guide.
A more sustainable income level depends on your age, investment strategy, total retirement savings, other sources of income, health, spouse’s needs, tax position and spending patterns. A retiree aged 60 may need their capital to last 30 years or more.
A retiree aged 85 may have a very different income need and planning horizon.
This is why a Living Annuity drawdown rate should be chosen with context, not just according to what is legally allowed.
3. Being Too Conservative With Investments
Many retirees assume that once they retire, they should move most of their money into cash or very low-risk investments.
This may feel safe, but it can create another risk: your money may not grow enough to keep up with inflation and ongoing withdrawals.
A living annuity may need to provide income for 20, 25 or even 30 years. Over that period, inflation can reduce the buying power of your income, while medical and lifestyle costs may continue to rise.
This does not mean retirees should take unnecessary risk. But it does mean that being too conservative can be just as dangerous as being too aggressive.
A well-structured living annuity portfolio often needs a balance between:
- income stability
- long-term capital growth
- inflation protection
- diversification across asset classes
- appropriate offshore exposure
- liquidity for income payments
The right investment mix should support both your short-term income needs and your long-term sustainability.
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4. Ignoring Inflation
Inflation is one of the quietest threats to retirement income.
You may start retirement with an income that feels comfortable, but that same amount may buy far less in 10 or 15 years. Food, electricity, medical aid, insurance and general living costs tend to increase over time.
If your Living Annuity income stays flat, your lifestyle may become harder to maintain. But if you increase your income too aggressively every year, you may place pressure on your capital.
This is where careful planning matters. Your income strategy should consider both today’s needs and tomorrow’s costs.
A Living Annuity review should ask:
- Is your income still enough for your monthly expenses?
- Is your drawdown rate still sustainable?
- Has inflation changed your required income?
- Has your portfolio grown enough to support an increase?
- Would a smaller increase be more appropriate?
The goal is not simply to increase income every year. The goal is to balance income needs with long-term capital preservation.
5. Forgetting About Tax
Your Living Annuity income is taxable, so the amount you draw is not always the amount you keep. SARS provides guidance on the tax treatment of annuity income and retirement-related tax matters.
This is important because increasing your Living Annuity income may affect your overall tax position or reduce the efficiency of your retirement income plan.
A common mistake is choosing a drawdown rate based only on gross income.
For example, a retiree may decide they need a certain monthly amount, but forget to allow for PAYE, medical aid costs, other taxable income, interest income or capital gains from discretionary investments.
Before increasing your Living Annuity income, it helps to consider the after-tax amount you actually need.
This is especially important if you have other sources of income, such as:
- rental income
- discretionary investments
- part-time consulting income
- interest income
- a spouse’s income
- another pension or annuity
Tax should not be the only factor in your drawdown decision, but it should form part of the planning conversation.
6. Not Reviewing Your Living Annuity Every Year
A Living Annuity is not a “set and forget” product.
Your income level, investment performance, fees, personal circumstances and market conditions can all change. That is why the annual review is so important.
At each review, you should consider:
- whether your current drawdown rate is still appropriate
- whether your portfolio has performed as expected
- whether your income is rising faster than your capital
- whether your asset allocation still suits your age and needs
- whether your fees remain competitive
- whether your beneficiaries are still correct
- whether your retirement goals have changed
Too often, retirees only review their Living Annuity when something has gone wrong. A better approach is to treat the annual review as a retirement income health check.
Even if you make no changes, the review gives you a clearer picture of whether your plan is still on track.
Interest in a free comparison report.
7. Panicking During Market Volatility
Market movements are part of investing, even in retirement.
A common mistake is reacting emotionally when markets fall. Some retirees switch to cash after a decline because they want to “protect what is left”. But selling growth assets after a market drop may lock in losses and reduce the chance of recovery.
This does not mean you should ignore market risk. It means your Living Annuity should be structured so that you do not need to make rushed decisions during difficult periods.
A good investment strategy should allow for:
- short-term income needs
- market volatility
- enough growth exposure for long-term returns
- diversification across asset classes
- regular but measured reviews
The first five years of retirement can be especially sensitive because poor market returns early in retirement, combined with withdrawals, can affect long-term sustainability. This is often referred to as sequence-of-returns risk.
The key is to have a plan before markets become uncomfortable.
8. Not Understanding the Role of Fees
Fees matter because they reduce the return your capital earns.
Living Annuity fees may include advice fees, investment management fees, administration or platform fees, and underlying fund costs. Even small differences can compound over time.
This does not mean the cheapest option is always the best. Advice, planning, portfolio construction and service have value. But fees should be transparent, competitive and justified.
A retiree drawing income from a living annuity should understand:
- what fees they are paying
- who receives those fees
- whether the fees are once-off or ongoing
- how fees compare with similar providers
- whether the investment strategy is delivering value after costs
If two living annuities offer similar investment options and service levels, but one has meaningfully higher total costs, the higher-cost option needs to justify the difference.
More abour the best Living Annuity in South Africa.
9. Forgetting to Update Beneficiaries
A Living Annuity is not only an income product. It is also part of your broader estate and legacy plan.
Many retirees nominate beneficiaries when they first open their living annuity, then forget to review those nominations. But life changes. Marriages, divorces, deaths, new grandchildren and family circumstances may all affect who you want to benefit.
Your beneficiary nomination should be reviewed regularly, especially after major life events.
It is also important to make sure your loved ones understand that a living annuity may offer different options on death, depending on the product rules and beneficiary choices. These may include continuing with an annuity, taking a lump sum, or a combination of the two.
This is an area where advice is valuable, because beneficiary decisions can have tax, income and estate-planning implications.
More about leaving your Living Annuity to beneficiaries.
10. Not Getting a Second Opinion
Many retirees stay in the same Living Annuity for years without checking whether their income, fees or investment strategy are still suitable.
A second opinion does not mean you have made a bad decision. It simply helps you test whether your current living annuity still fits your needs.
A review can help you answer questions such as:
- Is my drawdown rate sustainable?
- Are my fees competitive?
- Is my portfolio too risky or too conservative?
- Am I drawing more than my investments can support?
- Should I consider a different provider?
- Should I adjust my income at my next policy anniversary?
- Am I using the right mix of local and offshore investments?
Retirement is not static. Your Living Annuity should adapt as your life changes..
Final Thoughts: The First 5 Years Set the Tone
The early years of retirement are a crucial period for Living Annuity planning.
This is when your income habits, investment strategy and annual review process begin to take shape. Drawing too much too soon, ignoring inflation, overreacting to market movements or failing to review your plan can all affect your long-term retirement income.
The good news is that many of these mistakes can be avoided with proper planning.
A Living Annuity gives you flexibility, but that flexibility works best when it is supported by careful advice, realistic income planning and regular reviews.
Before increasing your income or changing your investment strategy, take time to understand how each decision could affect your future retirement income.
Your Living Annuity should not only support your lifestyle today. It should help protect your income for the years ahead.
Not sure whether your living annuity income is sustainable?
Explore our Living Annuity Product, use our Living Annuity Calculator or request a free comparison to review your drawdown rate, fees and investment strategy.
You can also read our Living Annuity Insights and Living Annuity FAQs for more guidance.
