Life vs living annuities – or both? Making the right choice for your retirement

When making this decision, it’s important to consider, among other factors, your need for flexibility, legacy planning, long-term sustainability (longevity & certainty), and protection against inflation.

Let’s explore each option in detail.

Life Annuity: a guaranteed income for life

A life annuity offers the security of a guaranteed monthly income for the rest of your life. It’s a “set-and-forget” solution, where the insurer takes on the longevity risk, meaning you cannot outlive your income. This makes it an attractive choice for those who value certainty and financial stability.

Benefits:

• Guaranteed income for life, unaffected by market fluctuations.
• Protection against inflation if an income escalation option is selected.
• Backed by long-term bonds, offering attractive rates in the current high-yield environment.
• Additional features such as:
  • Joint-life coverage (continuing income to a spouse)
  • Guaranteed payment periods

Limitations:

• No flexibility – once the annuity is set up, it cannot be changed.
• No capital payout at death (however, if a guaranteed term or second life is selected, income can continue to loved ones, and a lump sum is available if optional life cover is chosen).
• Only offers inflation protection if an annual income escalation was selected at inception; if not, your purchasing power may decline over time.

With current South African bond yields at historically high levels, a life annuity can offer particularly attractive income rates today.

Living annuity: flexibility and control

A living annuity provides retirees with greater control over their investments and income. You choose how your funds are invested and how much income you draw each year (within regulatory limits). It also allows you to leave any remaining capital to your beneficiaries.

Benefits:

• Income flexibility – adjust your income annually based on your needs.
• Investment choice – select and switch between underlying funds as needed.
• Legacy planning – remaining capital is passed on to beneficiaries after death.
• Potential for capital growth through market exposure.

Limitations:

• Income is not guaranteed for life – you bear the risk of outliving your savings.
• Income is affected by market performance and inflation.
• Requires active management and ongoing financial advice.
• Risk of capital erosion if drawdowns are too high or underlying investments underperform.

A living annuity generally suits those who are financially savvy, willing to accept market risk, and value the ability to leave a financial legacy.

A combination approach: best of both worlds

Blending a life annuity with a living annuity offers a powerful solution that balances certainty and flexibility.

This strategy ensures:

• Stable, guaranteed income from the life annuity component.
• Adjustable income and potential capital growth from the living annuity component.
• Protection against longevity risk, as the guaranteed income continues for life.
• Legacy opportunities, with any remaining funds in the living annuity passing to your beneficiaries.
• Options to protect loved ones through joint-life coverage or guaranteed income payment terms.

Choosing the right strategy

There is no one-size-fits-all answer when it comes to retirement income planning. Each option—life annuity, living annuity, or a combination—offers distinct advantages, depending on your personal circumstances.

That’s why it’s crucial to work with a reputable financial adviser who can help you build a strategy that balances:

• Income certainty
• Investment flexibility
• Longevity protection
• Legacy planning

Your retirement isn’t just a far-off idea—it’s your future. Make sure it’s well-planned, well-protected, and aligned with your life goals. Speak to a qualified adviser today to explore the best combination of solutions for your needs. DM

Learn more: A winning retirement strategy – Glacier Insights

About Glacier by Sanlam

Glacier by Sanlam is your trusted partner in unlocking infinite investment opportunities. As the largest linked investment service provider, we have led the way in meeting the diverse needs of South Africans for over 27 years. Our extensive range of local and international solutions empowers investors to create, grow, and preserve their wealth. Through innovative products and expert advice, we offer infinite opportunity to achieve financial success.

Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.

Sanlam Life Insurance Ltd is a licensed life insurer, financial services and registered credit provider (NCRCP43).