Choosing the right annuity for retirement is a critical decision.
Living Annuities and Life Annuities each offer unique advantages and limitations. Understanding these differences helps retirees align their choice with their financial goals and risk tolerance.
A) Living Annuity
A Living Annuity is an investment-style product that allows you to manage your retirement savings and adjust your income drawdown annually, within prescribed limits (2.5% to 17.5% of your capital value).
It offers flexibility, growth potential, and inheritance benefits, but also carries investment risks.
Benefits of Living Annuities
- Income Flexibility: Adjust withdrawals annually within prescribed limits.
- Investment Control: Choose and manage investments to match your financial goals.
- Growth Potential: Potential for higher returns based on market performance.
- Legacy Planning: Remaining funds go to nominated beneficiaries.
- Tax Efficiency: No estate duty on remaining funds, and growth within the annuity is tax-free.
Compare Living Annuity Options
Explore how different Living Annuities perform to find the best fit for your retirement goals. Start with our free Living Annuity Performance Comparison tool to review and evaluate options tailored to your needs.
B) Guaranteed Life Annuity
A Guaranteed Life Annuity is an insurance product where you receive fixed, predictable income for life.
The income is unaffected by market performance, and there’s no risk of outliving your savings. However, it offers limited flexibility and typically no inheritance benefits unless a guaranteed period is selected.
Benefits of Guaranteed Life Annuities
- Lifetime Income: Guaranteed, fixed income for life.
- No Investment Risk: Income is unaffected by market volatility.
- Simplicity: No need to manage investments or make financial adjustments.
- Longevity Protection: Eliminates the risk of outliving your savings.
Key Differences at a Glance
| Feature | Living Annuity | Guaranteed Life Annuity |
|---|---|---|
| Income Flexibility | Adjustable annually on anniversary | Provider manages all investments |
| Investment Control | You manage and select investments | Provider manages all investments |
| Risk Level | Dependent on market performance | Income is guaranteed |
| Legacy Planning | Remaining funds go to beneficiaries | Only if you have a guaranteed period |
| Income Stability | Based on drawdown and performance | Consistent income for life |
| Inflation Protection | Possible if returns exceed inflation | Requires selecting inflation-linked |
| Transfers | Transferrable to a Life Annuity | Non-transferrable to a Living Annuity |
FAQs
Can I combine a Living Annuity and a Guaranteed Life Annuity?
Yes, combining both products can provide a balanced retirement strategy. Â
A Guaranteed Life Annuity ensures stable income for essential expenses, while a Living Annuity offers flexibility and growth potential for discretionary spending.Â
What happens to my funds if I pass away?
- Living Annuity: Any remaining capital is passed to your nominated beneficiaries.
- Guaranteed Life Annuity: Funds typically cease upon your death unless a guaranteed period was selected.
How does inflation impact each annuity?
- Living Annuity: Investment returns may outpace inflation, but market volatility poses a risk.
- Guaranteed Life Annuity: Fixed income can lose purchasing power unless you choose an inflation-linked annuity.
What are the main risks of each annuity?
- Living Annuity: Market volatility and the risk of outliving your savings due to high drawdowns or poor returns.
- Guaranteed Life Annuity: Fixed income may not keep pace with inflation, and there’s no flexibility to adjust payments.
Who should consider each annuity?
- Living Annuity: Best for retirees who want flexibility, control over investments, and the ability to leave an inheritance.
- Guaranteed Life Annuity: Guaranteed Life Annuity: Ideal for those who prioritize income stability and want to eliminate market and longevity risks.
Which One is Right for You?
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Choose a Living Annuity if:
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You want flexibility in managing income and investments.
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You are comfortable with market risks for the potential of higher returns.
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You want the ability to leave remaining funds to your beneficiaries.
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Choose a Guaranteed Life Annuity if:
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You prefer a predictable and stable income for life.
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You want to avoid managing investments or dealing with market volatility.
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You prioritize longevity protection over flexibility or inheritance benefits.
A Common Strategy: Transitioning After Age 70
Many retirees choose to remain in a Living Annuity during the earlier years of retirement (10–15 years) to benefit from flexibility and growth potential.
Once they reach their 70s or later, some opt to transition to a Guaranteed Life Annuity. By doing so, their shorter life expectancy can result in a higher guaranteed income, making this a smart strategy for those looking to secure a stable and predictable income in their later years.
Take the Next Step
At Investonline, we don’t just offer Living Annuities and financial tools.
We also specialize in comprehensive Retirement, Financial, and Estate Planning to help you secure your financial future and leave a lasting legacy.
Let us help you make the right decision for your retirement.
Explore Living Annuity options with our Unit Trust Performance, or speak to one of our expert Client Portfolio Managers today to tailor a solution that suits your needs.
