How to decide between a living or life annuity

Published on 27th September, 2019 at 03:27 pm

When you retire from your pension or retirement annuity fund (here are 5 reasons to invest in one now), you should reinvest two thirds of the money to ensure a future income. You can either invest in a guaranteed life annuity or a living annuity. Karen Wentzel, head of annuities at Sanlam Employee Benefits, breaks down the pros and cons.

Life annuities

• Life annuities can offer the assurance that you won’t outlive your capital.
• Life annuities provide an income for life with annual increases.
• Not all types of life annuities will guarantee that the increases in income will keep up with inflation.
• Medical expenses may increase at a rate higher than inflation. Here are three lifestyle changes that can help boost your retirement savings.
• Life annuities also won’t leave capital for your dependants to inherit once you pass on.

Living annuity

• Market-linked and will fluctuate depending on the performance of its underlying investment portfolio.
• You can choose how much you want to draw as income annually. (Pensioners are obliged by law to take an income from 2.5%-17.5% per year.)
• If the drawdown rate remains below the growth rate of the investment portfolios, you’ll likely have capital remaining to leave as an inheritance once you pass on.

Feel overwhelmed by all the jargon? You’re not alone. Thankfully, we’ve rounded up all the definitions you need at your fingertips, to help you make wise decisions about your retirement.

Learn here how to make the most of your retirement with the right plan in place.

See how much you should be saving towards your retirement by using the free retirement calculator available to you on Wealth Sense via our website. You’ll also earn 1 000 tier points! Visit www.sanlamreality.co.za/wealth-sense/retirement-calculator/ to see for yourself.