Werner Pienaar a lifeline for living annuity holders 21Oct2023

A Lifeline for living annuity holders

By Werner Pienaar (CFP®)


In the world of retirement planning, individuals are often faced with the crucial decision of how to convert their hard-earned savings into a stable income stream during their golden years. Two popular options available are guaranteed annuities and living annuities, each with its own advantages and disadvantages. In recent times, South Africa has seen a resurgence in the appeal of guaranteed annuities due to below expected market returns and some of the highest guaranteed annuity rates seen in the last 20 years.

  1. Income Certainty

One of the most significant advantages of a guaranteed annuity is the assurance of a steady, predetermined income for the rest of one's life. This financial predictability can provide retirees with peace of mind, knowing that they will receive a fixed amount each month that can increase annually, regardless of market fluctuations or economic uncertainties. To the contrary, living annuities expose retirees to the risk of outliving their savings, as the income depends on the performance of the underlying investments as well as the initial capital invested.

  1. Protection Against Market Volatility

Guaranteed annuities shield retirees from the volatility of the financial markets. South Africa, like many other countries, has experienced market volatility in recent years. With guaranteed annuities, retirees do not need to worry about market crashes eroding their retirement savings. This protection can be particularly appealing to those who are risk-averse or have a low tolerance for financial uncertainty.

  1. Long-Term Financial Security

Guaranteed annuities are designed to provide a lifelong income stream, offering retirees financial security throughout their retirement years. This is especially important where longevity risk is a concern, and people are living longer than ever before. With living annuities, retirees face the challenge of managing their investments to ensure they do not run out of money in their later years.

  1. Estate Planning and Beneficiary Benefits

While living annuities can leave little to pass on to beneficiaries due to longevity or income withdrawal rates that are too high, guaranteed annuities offer more flexibility in estate planning. Many guaranteed annuity products allow retirees to name beneficiaries who can continue receiving income after the primary annuitant's death or a payout of up to 100% of the initial capital amount, depending on the structure of the product chosen. This can be a valuable feature for those who wish to leave a legacy for their loved ones.

  1. Emotional Comfort

Knowing that their retirement income is secure can significantly reduce the stress and anxiety that retirees may feel about their financial future. This comfort can lead to a more enjoyable and relaxed retirement, as retirees can focus on their passions and interests without constantly worrying about their financial situation.

Did you know?

  • A Guaranteed annuity can be structured with multiple lives and capital payout protection to ensure you leave an inheritance for you children/spouse.

  • You can migrate from your existing living annuity to a guaranteed annuity or a combination (hybrid) of the two products.

  • Most retirees are drawing too much from their living annuities. The result is that their income would not be sustainable in their later years. The current high guaranteed annuity rates available can offer a rare opportunity to reset this scenario for many retirees.

In conclusion, while living annuities have their merits and can be suitable for some retirees, the current high guaranteed annuity rates available offer a compelling alternative. The benefits of income certainty, protection against market volatility, long-term financial security, estate planning flexibility, and emotional comfort make guaranteed annuities an attractive choice for those seeking stability and peace of mind in their retirement years. As with any financial decision, it is essential for retirees to consult with a financial advisor to determine which option aligns best with their individual circumstances and goals.

If you are interested in more information or need advice on the option of including a guaranteed annuity as part of your retirement plan, please contact us to set up an appointment with one of our Certified Financial Planner® professionals.


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