How risky should your retirement plan be?

Published on 25th September, 2025 at 12:01 pm

Reading time: 3 minutes

In this article you’ll learn:

• Why age, time horizon and risk tolerance determine your retirement strategy.
• The difference between guaranteed annuities and living annuities.
• How to think about tax efficiency and added benefits like Sanlam’s Wealth Bonus.

Your “second salary” in retirement

Imagine this: after years of receiving a monthly salary you stop working one day, and suddenly, the responsibility of paying yourself begins. That income will come from the savings and investments you’ve built up over your career. In other words, your retirement income is your “second salary”, and how comfortable you’ll be depends on the financial choices you make today.

For most people, retirement is the biggest financial event of their lives. Getting it wrong can mean running out of money too soon. Getting it right means financial freedom and peace of mind. And at the heart of getting it right is one big decision: how much risk should your retirement plan carry?

Growth vs. preservation: what’s right for you?

A higher-risk, growth-oriented investment can build greater wealth over time, but it comes with more volatility. A conservative, capital-preserving approach gives stability, but less potential upside.

Financial Adviser, Adele Barnard explains: “Your decision should consider your age, your retirement timeline, and your tolerance for risk. Younger investors can afford to take more risks, because they have time to recover from market dips. As you approach retirement, protecting your capital becomes more important, but also bearing in mind your funds should still grow.”

However, the choice doesn’t stop once you retire. That’s when you’ll need to decide how you want to draw an income from your pension provision.

Guaranteed annuity vs. living annuity

When signing up to a retirement plan, South Africans typically choose between two main products:

• Guaranteed annuity: This conservative option gives you a fixed income for life, no matter how long you live. It’s low-risk and offers certainty, but your money won’t benefit from market growth.
• Living annuity: This keeps your retirement savings invested, giving you flexibility to choose your income level (between 2.5% and 17.5% annually). It carries more investment risk, but also the possibility of higher returns.

So, which is better? And which could deliver more over time? Barnard believes that there are pros and cons to both annuities, so she recommends that you sit down with your financial planner. However, many retirees blend the two: using a guaranteed annuity for essential expenses and a living annuity for growth and flexibility.

Why tax efficiency matters

Another consideration is tax. Retirement payouts are taxed as income, which means your withdrawal choices affect how much ends up in your pocket. Drawing too much too soon can push you into a higher tax bracket. Structuring withdrawals wisely and diversifying income sources can help your money go further.

The Sanlam Wealth Bonus advantage

Some Sanlam retirement plans come with an added benefit: Wealth Bonus. This feature rewards disciplined saving by paying you an additional percentage of your fund value at retirement.

The big picture

Ultimately, the question isn’t simply about choosing between high-risk or conservative. It’s about matching your money to your life goals, your comfort with uncertainty, and the lifestyle you want to sustain in retirement.

Barnard puts it simply: “Retirement planning is not about chasing the highest returns. It’s about ensuring you’ll have enough, for long enough to live with confidence and dignity.”
Start early. Save consistently. Understand your options. That way, when the day comes to start paying yourself, you’ll be ready.

Want to learn more? Explore more retirement insights on the Wealth Sense blog.

Sanlam Life is a licensed life insurer, financial services provider and registered credit provider (NCRCP43). The Sanlam Money Saver credit card and Wealth Bonus Lifestyle benefits are products of the Sanlam Reality programme, which is offered by Real Futures (Pty) Ltd, a subsidiary of Sanlam Ltd. the licensed controlling company of the Sanlam Limited Insurance Group. www.sanlam.co.za