July 2021
Jan van der Merwe, Head of Actuarial and Product
PSG Wealth
Retirement is an important milestone that many of us look forward to with anticipation. Having built up a working lifetime’s worth of retirement savings, selecting the right annuity option to meet your income needs in retirement is important. You need to take the time to consider your income options carefully, which can be a daunting prospect. In this article, we explore the features of annuities to provide you with some guidance.
“ Living annuities provide the opportunity to pass on wealth to your beneficiaries. ”
What is an annuity?
An annuity is a product that provides you with a regular income during your retirement. When you retire, at least two-thirds of your retirement fund savings must be used to purchase an annuity. One of your main considerations will be whether to purchase a life annuity or a living annuity.
What are the key differences between a life (guaranteed) annuity and a living annuity?
The type of annuity suitable for you will depend on your unique circumstances. In general, the following types of annuities are available in the market:
For all types of annuities, the income will be taxed according to your marginal tax rate.
The key factors to consider at retirement
There are many factors that will influence your decision of providing an income in retirement. The key factors that you need to consider include the following:
The main financial risks in retirement
Additional considerations when choosing an annuity
Top tips to make your retirement savings last
The first step to ensuring that your retirement savings last is to start off with as much in your savings as you can. This means that:
If you choose a living annuity, make sure you select a prudent annual drawdown percentage to maximise the number annuity payments you will receive. The drawdown percentage you select will depend on your age, your gender and whether you have dependants.
Selecting an annuity at retirement is not a simple task. It is important that you engage with a financial adviser to support you through this process.
In this edition of The Wealth Perspective, Chief Investment Officer Adriaan Pask explores the pivotal role a financial adviser can play in helping you reach your financial goals. Head of Sales, Nirdev Desai, reiterates the added value a financial planner can offer an investor. Then Madelein Steenkamp, Legal Specialist in Technical Advisory Support, explains the process of winding up a deceased estate. With retirement on the horizon for some, our Head of Actuarial and Product, Jan van der Merwe, provides a handy guide to annuity products and their suitability. Finally, Technical Legal Adviser, Marguerite Marais tackles the realities of retrenchment and what options are available to you.
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