After working for forty years, the time has come to make really important decisions about how you’ll manage your retirement funds to ensure that your golden years are all you’d hoped for.
When you retire, you must transfer two-thirds of your retirement funds to a Life Annuity or Living Annuity. Your retirement funds could include Pension or Provident Funds, Preservation Funds, or Retirement Annuities.
Choosing the right kind of annuity for your situation is often the foundation of a financially secure retirement.
A Life Annuity is a contract with an insurance company that guarantees fixed or variable payments for the rest of your life. A Life Annuity transfers the risk of outliving your savings to the insurer.
A guaranteed Life Annuity is a product that pays a regular income to you for the duration of your life (it can also include your spouse). The initial income is guaranteed and will never decrease, and you can choose that payments increase by inflation every year. A guaranteed Life Annuity can also have a guaranteed period of 20 or, say, 30 years. If you pass away within that period, the income will be paid to your spouse until the end of the guarantee period.
The most significant advantage of a Life Annuity is that it is risk-free, but the disadvantage is that it does end.
A Living Annuity is a financial product that pays you a regular income when you retire from your pension or retirement fund. You can choose how much income you want to receive each year (between 2.5 and 17.5 % of the funds you’ve saved) and where to invest your savings. You have greater flexibility and control over your money but also bear more risk and responsibility. If your withdrawals are too high, you can run out of money.
It is extremely important to get the asset allocation right, so please do allow us to help in this regard. Usually, your financial planner will select low-risk funds to pay you an income for the first couple of years and then higher-risk funds, including equity, so your investments will grow. When you have your annual review, your advisors will most likely rebalance the funds and place an increased amount into the low-risk portion.
You can select to have your Living Annuity paid monthly or annually. The most significant advantage of a Living Annuity is that it can assist you in creating generational wealth as the investments do not cease on your passing. Furthermore, Living Annuities do not form part of your estate, so they don’t attract estate duty or executor’s fees.
Both Life and Living Annuities are taxed as income at your marginal tax rate. Living Annuities are taxed at source (by the provider), and you can select the rate to match your marginal tax rate so that you don’t have to pay additional tax at the end of the year. When you rebalance the underlying investments in Living Annuities, Capital Gains Tax doesn’t apply.
You also have the option of choosing a hybrid annuity, which includes a Life and Living Annuity so that you get the best of both worlds. And do remember that you can change your Living Annuity into a Life Annuity at any point in time, but not the other way around.
It is essential to fully understand the advantages and disadvantages of each type of annuity before purchasing one.
Please do call us to make an appointment to discuss this significant decision before you retire.
Complete Your Financial Plan
Sign Up To Our Mailing List
September 4 - Market Update: Christmas in September if Rates Come Down as ExpectedSeptember 3 - Why You Should Keep Your Investment Strategy to YourselfSeptember 2 - Aligning Your “Wheel of Life” – A Beginner’s GuideSeptember 1 - The Big Question: Should You Buy a Home or Rent One?August 4 - Market Update: Magnificent Seven Lose Their Magnificence in JulyAugust 3 - Unsung Heroes of Insurance: Four Types That Could Save You MoneyAugust 2 - Do You Recognise Yourself in Any of These Client Case Studies?August 1 - Three Pot System 101: What You Need to Know Before 1 SeptemberJuly 4 - Market Update: Financial Markets Welcome GNU 2.0 and New CabinetJuly 3 - Busting the Post-Retirement JargonJuly 2 - Safeguard Your Money: Look out for Phishing ScamsJuly 1 - Why the Marshmallow Effect Could Derail Your Retirement PlansJune 4 - Why Emotions and Investing Don’t Always MixJune 3 - Demystifying Retirement Planning LingoJune 2 - The Sandwich Generation: How Can You Deal with Family Always Asking You for Money?June 1 - How the Elections May Impact Markets in the Months AheadMay 4 - Market Update: Geopolitical and Economic Risks are on the Rise and Investors are ConcernedMay 3 - Need to Know: Annualised Returns Versus Internal Rates of ReturnMay 2 - Investment Jargon 101: Your One-Stop PrimerMay 1 - Do You and Your Partner Share the Same Money Values?April 4 - Market Update : Will They, Won’t They? The Case for Lower Interest Rates Improved in March.April 3 - Unpacking Diversification: What Really Counts?April 2 - Zen and the Art of Financial PlanningApril 1 - The Secret to Solving the Financial Rubik’s Cube? Consistency.March 4 - Market Update: Initial Investor Vote of Confidence Dissipates in Wake of BudgetMarch 3 - The Most Important Part of a Financial Plan: Room for ErrorMarch 2 - Diversification: Free Lunch or Fool’s Gold?March 1 - Budget 2024: What it means for youFebruary 5 - Budget 2024: The Minister of Finance Wants to Hear from You!February 4 - Market Update: US and SA Markets Diverge on Differing Investor SentimentFebruary 3 - Tax Tip: Must-Do Top Ups in FebruaryFebruary 2 - Should Investing Be This Sexy?February 1 - Is There Really Much Difference Between Investing and Gambling?January 4 - Market Update: What Lies Ahead for 2024?January 3 - Think You’re a Rational Investor? Think AgainJanuary 2 - Did 2017 Change the Way You Invest?January 1 - How to Avoid Getting Burnt by the Next Investment Bubble in 2024
December 4 - Stock Markets Break Three-Month Losing StreakDecember 3 - The Differences Between Life and Living AnnuitiesDecember 2 - Should you be an Optimist or a Pessimist With Your Money?December 1 - How to Give Meaningful Gifts This Festive SeasonNovember 4 - Market Update: The Effects of War, Higher Interest Rates and China on EquitiesNovember 3 - Why do People Invest in Property?November 2 - Retirement Planning: The ins and Outs of Nominating BeneficiariesNovember 1 - Retiring Well is About More Than MoneyOctober 4 - Why Your Marital Contract Really MattersOctober 3 - How to Avoid Being Scammed by Email FraudstersOctober 2 - The Stock Market Indices to Watch When Monitoring Equity PerformanceOctober 1 - Why do Some People Have a Problem Spending Money?September 4 - The Difference Between Being Rich and Being WealthySeptember 3 - The Ins and Outs of Buying Offshore PropertySeptember 2 - A Good Budget Doesn’t Limit Spending, it Prioritises itSeptember 1 - Should you pay off your home loan?August 4 - How to Take Advantage of the Donations Tax AllowanceAugust 3 - Five Reasons why a Financial Windfall Must be Managed CarefullyAugust 2 - What’s Cooking with the Three-Pot System?August 1 - Make Sure Your Family is Financially Prepared for When You Pass AwayJuly 4 - A Must-Have for Couples who Choose not to Tie the KnotJuly 3 - Can Gratitude Make you Feel Better About Your Money?July 2 - Four Ways to Make the Most of RetirementJuly 1 - How to Invest When There’s So Much Bad NewsJune 4 - The Ins and Outs of Compulsory AnnuitiesJune 3 - Who is Influencing Your Financial Decisions?June 2 - R is for RebalancingJune 1 - Don’t let Money Ruin Your RelationshipMay 4 - Five Ways to Teach Kids About MoneyMay 3 - Much Ado About RiskMay 2 - Living Wills: A Must Have, Despite the Grey AreasMay 1 - What is True Wealth?April 4 - How the 2023 Budget Will Impact Your PocketApril 3 - Three Financial Imperatives for Women in DivorceApril 2 - Should You Ask ChatGPT for Financial Advice?April 1 - Compound Interest: The Eighth Wonder of the WorldMarch 4 - How a ‘Safe’ Fixed Deposit Might Still be RiskyMarch 3 - Thinking of moving to Australia? Bear these numbers in mindMarch 2 - Avoid These 6 Barriers to Wealth CreationMarch 1 - How Good do You Think You Are at Investing?February 4 - Is Money Stress Taking a Toll on You?February 3 - Why an Endowment is One of the Best Ways to Invest OffshoreFebruary 2 - Why too Much of a Good Thing Can be a Bad ThingFebruary 1 - Invest With FIRE and Never Look BackJanuary 4 - Why Lottery Winners End up Broke: The Importance of Your Financial ContextJanuary 3 - Discover the Freedom of a Tidy PortfolioJanuary 2 - Why You Absolutely Should be Investing in EducationJanuary 1 - Four Simple Steps to Start the Year on the Right Financial Foot
December 4 - What is This Volatility Risk People are Always Talking About?December 3 - Why You Need to Watch Out for The Butterfly EffectDecember 2 - 6 Ways to Achieve Financial FreedomDecember 1 - Three Books for the HolidaysNovember 4 - The Question of LoyaltyNovember 3 - Why do we Even Have Bull and Bear Markets?November 2 - Should I Buy a Holiday House?November 1 - Put Stocks, Rather Than Socks, Under the Tree This ChristmasOctober 4 - Can You Take Out Life Insurance on Someone Else?October 3 - Loss Aversion and Lifestyle Creep – How Behaviour Influences SavingOctober 2 - Why Timing Might be Everything in Retirement – Especially in a Bear MarketOctober 1 - Get Rich - Stay Rich Eight Mistakes Wealthy People Never MakeSeptember 4 - Capital Gains Tax: 10 Common Questions AnsweredSeptember 3 - The Risk That Many Investors Don’t Think AboutSeptember 2 - Much Ado About Regulation 28 and the Private InvestorSeptember 1 - The “Two Bucket” Retirement Savings System: What is it and Why is it Important?August 4 - Retirement Planning for Age-Gap CouplesAugust 3 - A Simple “50-15-5” Budget Hack for Women (and Men!)August 2 - Does Your Family Need a Constitution?August 1 - Women’s Month: Three Ways You Can Improve Your Money HealthJuly 4 - Five Things to Check When a Loved One Passes AwayJuly 3 - Rules of Financial Planning For a Special-Needs ChildJuly 2 - Why Your Financial Plan Should Cater For Possible DementiaJuly 1 - Why Inflation is the Most Important Investment BenchmarkJune 4 - How Relevant Is The 4% Rule of Thumb These Days?June 3 - Why You Should Treat Your Finances Like Your HealthJune 2 - Is Your Business Good Retirement Capital?June 1 - With the Limits Raised, How Much Should You Invest Offshore?May 5 - Quote of the Month: Challenging the Rejection of an Insurance ClaimMay 4 - Financial Products: The Less You Understand, the More You PayMay 3 - The Miracle of Investment Debit OrdersMay 2 - Five Things to Think About as Interest Rates RiseMay 1 - Stay Calm When the Bear ProwlsApril 5 - Quotes of the Month – The War in UkraineApril 4 - Smart Ways to Give: During and After Your LifetimeApril 3 - Take These Three Steps to Break the Money Shame SpiralApril 2 - When Things Don’t Go According To (The Financial) PlanApril 1 - What Amazon and Ford Can Tell Us About DiversificationMarch 4 - Quotes of the month – What the NFT?March 3 - How to Avoid Losing Your Life’s Savings to a “Tinder Swindler”March 2 - The Different Ways to Invest: What Does It All Mean?March 1 - Three Reasons You Shouldn’t Wait to Talk to Your Kids About MoneyFebruary 6 - Quote of the Month – Don’t Cash In Your Retirement SavingsFebruary 5 - Should You Top Up Your Retirement Annuities Now?February 4 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial DistressFebruary 3 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial DistressFebruary 2 - Three Reasons an Insurer Could Cancel Your PolicyFebruary 1 - Investing: Men and Women See Things DifferentlyJanuary 4 - Quote of the month – Stay invested!January 3 - What SARS Says About Crypto Assets and TaxJanuary 2 - Three Ways to Leave a Legacy, And Not Just an EstateJanuary 1 - Red-Carding the Myth of The Rational Investor