Living or Life Annuities: Choosing the Right Option for Your Retirement Income

Feel free to reach out to PSG Wealth adviser Lorika Steyn directly.

Meet John and Mary

John and Mary are about to retire and want to ensure their savings last through their retirement. They have R3,000,000 to invest and are considering two options: Living Annuities and Life Annuities.

Living Annuity

John likes the idea of flexibility. He chooses a Living Annuity, which allows him to manage his investments and adjust his income as needed. Here’s why John feels that the features of a Living Annuity meet his needs:

• Flexibility: John can choose how his money is invested and decides to withdraw 5% annually. This gives him R150,000 per year, or R12,500 per month. John has the flexibility to choose how much income to withdraw annually. Legally, the withdrawal percentage can range from 2.5% to 17.5% of the market value of the Living Annuity's assets.
• Growth Potential: Because his money stays invested in the market, there’s potential for growth. He can choose a mix of stocks, bonds, and cash to match his risk tolerance.
• Control: John feels in control of his money, adjusting his withdrawals and investment strategy every year as needed.
• Legacy: John likes that any remaining funds can be passed to his beneficiaries.

However, John knows there are risks. Market fluctuations could affect his investment value, and he needs to be careful not to withdraw too much and outlive his savings.

Life Annuity

Mary prefers security. She opts for a Life Annuity, which provides a guaranteed income for life. Here is how it works for Mary:

• Guaranteed Income: Mary receives a fixed income every month, regardless of market conditions. For her R3,000,000 investment, she gets around R16,666 to R21,000 per month.
• Simplicity: Mary does not need to worry about managing investments or market ups and downs. Her income is stable and predictable.
• Peace of Mind: Mary knows she will not outlive her savings. The guaranteed income gives her peace of mind. Yearly increases to Mary’s income are also contracted upfront.

On the downside, Mary understands that she cannot access her lump sum once the annuity is purchased, and there might not be any funds left for her heirs unless she chooses a specific guarantee period that could influence the monthly income she will receive.

Which Option is Right for You?

Like John and Mary, your decision depends on your personal preferences and financial goals. Do you value flexibility and control, like John? Or do you prefer the security and simplicity of a guaranteed income, like Mary?

Combining both types might offer a balanced approach. A Living Annuity can provide growth and flexibility, while a Life Annuity can ensure you have a stable income for life.

We are here to help you navigate these options and create a retirement plan that suits your needs. Let us schedule a meeting to discuss the best strategy for you. We look forward to helping you start this exciting new chapter with confidence.