The living annuity is mostly the preferred choice at retirement today, as it allows investors the flexibility to select their income level, manage the funds in which their retirement capital will be invested and thereby control their exposure to growth assets. Another attractive point is that it addresses the desire of many investors to leave a legacy by allowing them the option to nominate beneficiaries (in most cases their children) to inherit the proceeds.
Considerations when selecting a living annuity
However, investors who have not saved enough may see their capital depleted during the course of their retirement. The reason for this is that investors often draw too high an income and eat into their capital.
A sustainable income that lasts throughout retirement should be the main concern of investors and their advisers. Some of the pitfalls include retiring too early, not saving enough before retirement, drawing too high an income and lastly but most significantly, investors investing too conservatively in their years before retirement.
Is there another way?
Early in retirement, many retirees opt for a living annuity as the flexibility allows them to draw a higher income than a traditional life annuity may provide.
In some cases investors may need to accept that leaving a legacy may not be possible. Their main priority should be to ensure their month-to-month income requirement is catered for sustainably. One of the ways in which this can be achieved is by looking at the traditional life annuity that guarantees an investor an income for life.
Combining the two options may be the answer
Many retirees may benefit from combining a life and a living annuity, which they can do through Glacier by Sanlam. This offers them a guaranteed income for life with no capital risk on the one hand, together with the flexibility of the living annuity where investors (now with a guaranteed income provided by the traditional annuity) are free to a large extent to expose themselves to growth assets to ensure their capital in the living annuity continues to grow.
If this is a route you would like to consider, now or even at a later stage, then plan ahead and speak to your financial adviser before retirement. Guaranteeing as much of the month-to-month income as possible should be the main priority of every investor and his or her financial planner, rather than focusing on the capital alone.
Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.
Sanlam Life is a Licensed Life Insurer, Financial Services and Registered Credit Provider (NCRCP43)
The Glacier Investment-Linked Living Annuity is underwritten by Sanlam Life Insurance Ltd and administered by Glacier Financial Solutions (Pty) Ltd.
