Deciding between a Living and Life Annuity
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Deciding between a Living and Life Annuity

By Karen Wentzel, 18 March 2020

When you retire from your pension or retirement annuity fund, 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
  • 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

This article was prepared by Sanlam Reality.

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