Saving for retirement is important—but making your money last is just as critical. If you have a Living Annuity, how you manage it will affect how long your money supports you.
That means keeping an eye on how much you withdraw, how your money is invested, and how much you pay in fees.
Here’s how to make your Living Annuity work harder, for longer.
What is a Living Annuity Strategy?
With a Living Annuity, you decide how your money is invested and how much income to draw—anywhere between 2.5% and 17.5% a year. The flexibility is great, but it means you need a plan to avoid running out of money too soon.
The Golden Rule
A simple way to check if your plan is on track is this:
Your investment return should be equal to or more than: your drawdown + inflation + fees.
If you’re drawing 4%, inflation is 6% and your fees are 2%, your money needs to grow by at least 12% a year to keep up. If it doesn’t, your capital will shrink over time.
Pick the Right Mix of Investments
How your money is invested makes a big difference. You’ll usually want a mix of:
- Shares (for growth)
- Bonds and income funds (for stability)
- Cash (for short-term needs)
- Offshore investments (for diversification)
A conservative investor might hold fewer shares and more income assets. If you’re focused on long-term growth and can handle ups and downs, you might invest more in shares. Your mix should match how much risk you’re comfortable with and how long you need the money to last.
Understand Your Risk Tolerance
Ask yourself: Can I handle short-term losses? Do I need access to my capital? Am I more focused on steady income or long-term growth? There’s no one-size-fits-all approach—just make sure your investment plan matches your comfort level.
Think Long-Term
If you retire at 60, your annuity might need to last 30 years or more. Over time, inflation will eat into your buying power—so you’ll likely need some growth assets like shares to stay ahead. Review your investments regularly and adjust as your needs change.
Be Smart About Your Drawdown
Your drawdown rate is how much you take out each year. A 4% drawdown is generally seen as sustainable over the long term. The higher the drawdown, the faster your money can run out—especially if markets are down or returns are low. Revisit your drawdown annually and cut back during tough years if you can.
Keep Fees Low
Fees may seem small but add up over time. A 1–2% difference can make a massive impact on your final outcome. Always check the total fees you’re paying and make sure you’re not losing returns to hidden costs.
Putting It All Together
Let’s say your investments return 10% a year. If your drawdown is 4%, inflation is 5% and fees are 2%, you’re under pressure. Something needs to give—you might reduce your drawdown, lower your fees or aim for higher growth (if your risk tolerance allows). The key is to keep checking and adjusting as you go.
In Summary
A Living Annuity puts you in control—but it also means staying informed and active with your choices. Focus on:
- A realistic, flexible drawdown
- A mix of investments that suit your goals
- Low, transparent fees
- Regular reviews and adjustments
Want to see how your plan stacks up? Try our Living Annuity Calculator, or chat with an Investonline adviser for a personalised comparison.
