Living Annuities
A living annuity gives you flexibility and control over your retirement income. Choose how your funds are invested and how much income to draw each year, while your capital continues to grow.
What Is a Living Annuity?
A living annuity is an investment product used to provide income from your retirement savings after you retire. Unlike a guaranteed annuity, you choose how your funds are invested and how much income to draw each year, giving you flexibility and control.
With a living annuity, your capital remains invested in your chosen portfolio, which continues to grow while you draw income. This gives you the potential to outpace inflation and preserve your purchasing power throughout retirement.
How Living Annuities Work
Fund Your Annuity
Use at least two-thirds of your retirement savings from an RA, pension, or provident fund to purchase a living annuity.
Choose Investments
Select your underlying investments from collective investment schemes, wrap funds, and personal share portfolios (PSPs).
Draw Income
Draw between 2.5% and 17.5% of your capital each year, adjusting annually as your needs change.
Risks of a Living Annuity
Flexible Drawdown Levels
Choose to draw between 2.5% and 17.5% of your capital annually, adjusting as your needs change.
Investment Choice
Select your underlying investments from collective investment schemes, wrap funds, and PSPs.
Growth Potential
Your portfolio continues to grow while you draw income, with potential to outpace inflation.
Bequeathable Capital
Capital can be passed to beneficiaries on death, with no estate duty payable.
Tax-Efficient Structure
Living annuities have no estate duty, and growth within the annuity (interest, dividends, capital gains) is not taxed. Only the income you draw is taxed as normal income.
Benefits of a Living Annuity
While living annuities offer flexibility and growth potential, it's important to understand the risks involved:
Investment Risk
Your capital remains exposed to market fluctuations, which can affect your income.
Longevity Risk
Drawing too much income may deplete your capital before the end of your life.
Drawdown Discipline
Staying within sustainable withdrawal levels is essential to preserve capital.
Tax on Living Annuities
Income Taxation
Income drawn from your living annuity is taxed as normal income according to your tax bracket.
Growth Tax-Free
No tax is payable on interest, dividends, or capital gains within the annuity while it remains invested.
Estate Duty Exempt
On death, proceeds are not subject to estate duty, but beneficiaries pay income tax on withdrawals.
Can You Withdraw from a Living Annuity?
You cannot take a full lump sum withdrawal from a living annuity, except in specific circumstances:
- When the value of your living annuity falls below R125,000
- When the annuity was purchased with a lump sum under R125,000
Otherwise, capital must remain invested and only income may be drawn annually between 2.5% and 17.5% of the capital value.
How Much Income Can You Draw?
The amount of income you can draw from your living annuity depends on your capital, life expectancy, and investment returns. Drawing too much may deplete your capital too early, while drawing too little may leave you with insufficient income.
Living Annuity Calculator
Use our living annuity calculator to test different drawdown levels and income projections based on your capital and life expectancy. Our retirement investment advisors will help structure your drawdown rate to preserve your capital.
Why Choose Warwick Wealth
Tailored Portfolio Construction
We align your investment portfolio to your drawdown strategy, risk profile, and income needs.
Expert Monitoring
Portfolios are actively managed with Orion Investment Managers, with ongoing risk monitoring and rebalancing.
Decades of Experience
Our retirement investment advisors have decades of experience advising retirees on sustainable income strategies.
Transparent Reporting
Receive clear, transparent reporting on your portfolio performance, drawdowns, and capital preservation.
Related Retirement Planning Services
Retirement Annuities
Build retirement capital before you retire with tax-deductible contributions and protected savings.
Preservation Funds
Preserve your retirement savings when changing jobs and maintain tax benefits.
Comprehensive Retirement Planning
Combine pre- and post-retirement strategies for a secure financial future.
Start Your Living Annuity Journey
Draw a reliable income and protect your capital with a living annuity investment plan from Warwick Wealth. Book a consultation with a retirement investment advisor today.
Frequently Asked Questions (FAQ)
What is a living annuity?
A living annuity is an investment product used to provide income from your retirement savings after you retire. Unlike a guaranteed annuity, you choose how your funds are invested and how much income to draw each year (between 2.5% and 17.5%), giving you flexibility and control over your retirement income.
How does a living annuity work?
A living annuity is funded using at least two-thirds of your retirement savings from an RA, pension, or provident fund. You choose your underlying investments from collective investment schemes, wrap funds, and personal share portfolios. Your portfolio continues to grow while you draw income annually, with the flexibility to adjust your drawdown rate each year.
What are the benefits of a living annuity?
Living annuities offer flexible drawdown levels, choice of underlying investments, growth potential beyond inflation, and the ability to bequeath capital to beneficiaries on death. They also have a tax-efficient structure with no estate duty, and growth within the annuity is not taxed.
Can I withdraw my living annuity as a lump sum?
You cannot take a full lump sum withdrawal from a living annuity, except when the value falls below R125,000 or the annuity was purchased with a lump sum under that amount. Otherwise, capital must remain invested and only income may be drawn annually.
How is a living annuity taxed?
Income drawn from a living annuity is taxed as normal income according to your tax bracket. However, there is no tax on growth (interest, dividends, or capital gains) within the annuity. On death, proceeds are not subject to estate duty, but beneficiaries pay income tax on amounts they withdraw.
Expert Living Annuity Advice
Our retirement investment advisors will help you structure a sustainable drawdown strategy that balances your income needs with capital preservation. We provide ongoing portfolio management and monitoring to ensure your living annuity continues to meet your retirement goals.