Welcome to our Living Annuities Series, where we simplify the complexities of turning your retirement savings into a reliable income. Living Annuities offer the flexibility to manage your investments, customize your withdrawals, and leave a legacy for your loved ones.
In this series, we’ll explore how Living Annuities work, from managing drawdowns and inflation-proofing your portfolio to understanding fees and building a resilient investment plan. With the right approach, you can design a retirement strategy that meets your needs and safeguards your future.
We start by providing a summary of the parts of the series, below:
Part 1: Living Annuities Made Simple
Start with the basics of living Annuities and explore how they compare to Life Annuities. Understand the concept of drawdown rates and find your sustainable withdrawal sweet spot.
Key Takeaways:
- What a Living Annuity is and how it works.
- The difference between Living and Life Annuities.
- How to choose the right drawdown rate to make your money last.
💡Pro Tip: Use a Living Annuity Calculator to estimate how long your savings will last with different drawdown rates.
Part 2: Inflation-Proofing Your Retirement
Discover strategies to protect your retirement savings from inflation while maintaining steady income.
Key Takeaways:
- Why inflation matters and how it erodes purchasing power.
- How to build a balanced portfolio with equities, bonds, cash, and property.
- The benefits of offshore investments for global diversification.
💡Pro Tip: Aim for 40%-60% offshore exposure to balance global growth opportunities with currency risk.
Part 3: The Truth About Fees
Learn why net returns matter more than fees and how to ensure you’re getting value for your money.
Key Takeaways:
- Understand the impact of fees on your retirement savings.
- Why net returns are more important than low fees alone.
- How to compare providers and ensure you’re paying reasonable costs.
💡Pro Tip: Ask for a detailed breakdown of fees from your provider and compare them using a Living Annuity Comparison tool.
Part 4: Building Resilient Investments
Explore how to create a resilient portfolio that grows your savings while handling market volatility.
Key Takeaways:
- Diversify your portfolio with equities, bonds, cash, and property.
- The advantages of global diversification without Regulation 28 limits.
- Strategies for staying the course during market ups and downs.
💡Pro Tip: Regularly review your portfolio to ensure it aligns with your changing needs and risk tolerance.
Part 5: Tax and Legacy Planning
Understand the tax implications of Living Annuities and how to leave a financial legacy for your loved ones.
Key Takeaways:
- How withdrawals are taxed and how to plan efficiently.
- The importance of keeping beneficiary details updated.
- The role of an emergency fund in safeguarding your Annuity strategy.
💡Pro Tip: Work with a financial advisor to optimise your withdrawals for tax efficiency.
Part 1:
Living Annuities Made Simple
Retirement is an exciting chapter, but it comes with key financial decisions. One of the biggest? Turning your savings into a steady income.
Here’s where Living Annuities step in as your flexible retirement income.
What is a Living Annuity?
A Living Annuity acts like a self-designed retirement income. Your savings stay invested, and you withdraw a portion annually to cover your lifestyle. It’s flexible but requires careful management to ensure your money lasts.
Living Annuity: You manage the investments, choose your income, and leave remaining funds to your heirs.
Life Annuity: Offers guaranteed income for life, but you have no investment control, and heirs receive nothing.
With a R3 million retirement fund, a Living Annuity lets you invest for growth and withdraw a sustainable 4% (R120,000 annually). A life annuity might offer R150,000 but with no flexibility.
Read more about how Living Annuities compare to Life Annuities:
Who Should Consider a Living Annuity?
Living Annuities work best for retirees who:
- Want control over their investments.
- Are comfortable with market fluctuations.
- Intend to leave an inheritance.
If guaranteed income sounds more appealing, a Life Annuity may be a better fit. Use tools like a Living Annuity Comparison to explore your options.
Finding Your Drawdown Sweet Spot
The drawdown rate determines how much you withdraw each year. Too high, and your money won’t last. Too low, and you might not enjoy your retirement fully.
South African rules allow drawdowns of 2.5% to 17.5%.
A 4-5% rate is considered sustainable, balancing income with long-term growth.
💡Pro Tip: With R2 million invested, withdrawing R80,000 annually (4%) ensures your funds grow without depleting too quickly.
Next Up: Inflation-Proofing Your Retirement
Learn how to inflation-proof your savings and build a portfolio that stands the test of time.
Part 2:
Inflation-Proofing Your Retirement
Retirement savings need to grow to keep up with inflation. Let’s dive into strategies that protect your money’s value while providing steady income.
Why Inflation Matters
Inflation increases the cost of goods and services over time, reducing your purchasing power. Without growth-oriented investments, your savings could lose value.
A withdrawal of R20,000 monthly might feel sufficient today but could feel like R12,000 in 10 years with 6% annual inflation.
Building a Balanced Portfolio
Diversification is your best weapon against inflation. Include:
- Equities: For long-term growth.
- Bonds: For stability and income.
- Cash: For short-term liquidity.
- Property: Balances growth and returns.
💡Pro Tip: A mix of 60% equities, 30% bonds, and 10% cash balances risk and growth while protecting against inflation.
The Offshore Advantage
Living Annuities allow up to 100% offshore investment, offering access to global markets and protection against the weakening rand.
Investing in global tech companies like Apple or Microsoft provides diversification and access to stronger economies.
💡Pro Tip: Start with 40%-60% offshore exposure for a mix of global diversification and manageable currency risk.
Next Up: The Truth About Fees.
Explore the impact of fees and why net returns matter most in the long run.
Part 3:
Why Returns After Fees Matter More
When managing a Living Annuity, it’s not just about minimizing fees—it’s about ensuring your net returns work hard for your retirement. Let’s focus on understanding fees and why prioritizing what you keep after costs is key.
The Role of Fees in Retirement Investments
Fees are a necessary part of investing. They pay for services like fund management, advice, and administration. However, the impact of fees isn’t just about what you pay; it’s about how they influence the growth of your investment.
Imagine two portfolios starting with R1 million and earning 10% annually:
- Portfolio A has fees of 1.5%.
- Portfolio B has fees of 1%.
While both portfolios grow, what ultimately matters are how your net return — the return after fees — contributes to your long-term savings. Even small differences can accumulate over time, emphasizing the need to focus on value rather than cost alone.
Why Net Returns Trump Low Fees
It’s easy to focus on providers with lower fees, but what really counts is how your investment performs after costs are deducted. Some providers may charge slightly higher fees, but if they consistently deliver stronger returns, they might leave you in a better position over time.
- Provider A: Fees 1.5%, Returns 10% → Net Return = 8.5%.
- Provider B: Fees 1%, Returns 7% → Net Return = 6%.
In this case, Provider A offers a higher net return despite charging more. It’s the balance of costs and performance that determines your financial outcome.
Let a Client Portfolio Manager Help
Not sure if you’re getting the best value? A Client Portfolio Manager can help guide you through understanding your fees, assessing your net returns, and aligning your investment strategy with your retirement goals.
Having expert insight can make a significant difference in making the right decisions.
Staying on Top of Your Investments
Fees are just one factor in managing your Annuity. Regularly reviewing your investments ensures they align with your goals and deliver value:
- Are the fees you’re paying justified by your returns?
- Is your portfolio performing consistently?
If not, it may be time to reassess your provider or investment strategy. The aim isn’t just to reduce costs but to ensure that every rand paid contributes to better outcomes.
💡Pro Tip: Ask for a clear breakdown of all fees—investment, advice, and administration. Use a Living Annuity Comparison tool to ensure you’re making the most of your retirement funds.
Next Up: Building a Resilient Investment Portfolio.
Understanding fees and returns is one part of the equation.
In the next series, we’ll explore how to create a resilient portfolio that balances growth, income, and risk to maximize your Living Annuity’s potential.
Part 4:
Building Resilient Investments
Retirement is unpredictable. A resilient portfolio ensures your savings can grow while handling market ups and downs.
The Power of Diversification
Spread your investments to balance growth and risk:
- Equities: High growth potential.
- Bonds: Stability and income.
- Cash: For emergencies.
- Property: Balanced returns.
Global Opportunities
With no Regulation 28 limits, Living Annuities allow full offshore investment. Global diversification protects against local risks and taps into broader growth opportunities.
A portfolio with 50% local and 50% offshore investments balances exposure to strong international markets and local needs.
Stay the Course
Market volatility is inevitable. Avoid panic selling during downturns—it locks in losses. Instead, stick to your long-term plan.
💡Pro Tip: During a market dip, consider reducing withdrawals temporarily to preserve your savings.
Next Up: Tax and Legacy Planning.
Learn about the tax implications of Living Annuities and how to leave a lasting legacy for your loved ones.
Part 5:
Tax and Legacy Planning
Living Annuities aren’t just about income—they offer opportunities for tax efficiency and leaving a lasting legacy.
Understand Tax Implications
Withdrawals are taxed as income, so plan wisely to avoid paying more than necessary.
Leaving a Legacy
Any remaining funds in a Living Annuity go to your beneficiaries, who can take it as a lump sum or continue the Annuity.
💡Pro Tip: Regularly update your beneficiary details to reflect your current wishes.
Emergency Planning
An emergency fund outside your Annuity can cover unexpected costs, avoiding the need to withdraw during market downturns.
Keeping R100,000 in a high-interest savings account ensures peace of mind without disrupting your investment strategy.
Stay Tuned: That’s it for this series, but more insights are on the way. Be ready to dive deeper into optimizing your retirement investments!
