legislation / retirement-planning / our-economy / after-retirement / general-investing

Building blocks to a lasting Living Annuity

8 July 2024

Our recent webinar, Building Blocks to a Lasting Living Annuity generated a lot of interest from retirees, people who are thinking about retirement, and the investment community as a whole. You can watch the recording by clicking here, and read the transcript below.

Here are the timestamps for the key points covered in the webinar:

  • What is the difference between a living and guaranteed annuity? [2:59]
  • Can I invest in both a living annuity and a guaranteed annuity in retirement? [7:27]
  • How does a living annuity aim to beat inflation consistently? [9:08]
  • How do I set my living annuity drawdown rate so that I don’t run out of money in retirement? [10:45]
  • What is my Effective Annual Cost (EAC), and how do fees impact my investment? [12:56] 
  • Can I change the asset allocation in my living annuity? [14:34]
  • How much offshore exposure do I want in my living annuity? [16:11] 
  • Can I switch between retirement annuity or living annuity providers? [20:56]
  • How is my retirement income taxed? [31:33]
  • Can I leave my living annuity capital to nominated beneficiaries? [39:09]
  • How not to run out of money in retirement [41:44]

Webinar transcript

Simon Brown: Morning ladies and gents. My name is Simon Brown. I'm hosting this webcast today with 10X investments. It's not going to be me giving the answers, I'll be getting questions from the experts. We're looking at building blocks to a lasting living annuity.

One of the key things, and I've spoken about this often on shows and TV's and webcasts, our entire focus around saving and investing is getting to retirement and having sufficient money for retirement. The how much is enough money is a bit of how long is a piece of string, but nonetheless, that's the focus. 

living annuity calculator

Then, of course, we get to retirement and hopefully we've got a big pile of money which is now available to us for our retirement. And that then really starts the incredibly hard questions. They're not truthfully hard to the experts like we'll have on our panel, but they're hard to you and I, the difference between living and guaranteed and drawdown rates and offshore versus local and all of this.

I don't want to say they are life defining, and certainly we can make tweaks along the way. It's not like we make a decision and that's going to be it forever and a day. But there are a lot of questions that we have at that point in time. And unfortunately, often times the folks that we are engaging with, and we'll exclude present company from that, are more interested in the fees than actually in that process. 

So today we've got two from 10X Investment, Kelin Pottier, he's a solution strategist at 10X Investments and Brett Mackay, investment consultant at 10X Investments.

Gentlemen, welcome and thank you to both of you. As I said in the intro there, the plan today really is to try and help with those questions, which come up when we get into our retirement or for some folks who are in retirement want to look back at what they've done. 

Ladies and gentlemen, on the webcast, if you've got questions, drop them into the Q&A. If it's something I'm going to come to later in the presentation, we'll come to it at that point. Otherwise, there is time at the end. We can certainly take questions then. 

What we're not going to be doing today is personal specific questions, particularly around tax, but particularly around individual cases. If you need that sort of help, you can obviously get hold of 10X. They can obviously help you in that regard.

Kelin and Brett, I really appreciate you're going to be our masterminds today and guide us through. And Kelin, can I start with you with the classic question - if we've come out of a Reg 28 fund, we now have to buy an annuity with 2/3 of that money. And the question then is, well, hang on living versus guaranteed, what are the differences, some of the high level pros and cons? Because I think that's the first thing that people stumble into and get stuck on.

Kelin Pottier: Sure. Thanks again for having us on this morning, Simon. I think when you get to retirement, there's really two options facing investors. 

The first is a guaranteed annuity. A guaranteed annuity is an insurance type product where you hand over your retirement savings that you've earned over your life and in return an insurer guarantees to pay you a fixed amount of income every month until you pass away. 

A living annuity on the other hand is more of an investment style product where you get to continue investing your hard earned savings, you get to continue growing that money tax free and you get to draw down an income from the returns of your investments.

And so while both products are seeking to give you an income in retirement, the features and benefits are quite different. It's important to navigate the pros and cons of each.

Simon Brown: I take your point. And I think it's a key point. You use the word that the guaranteed is kind of like an insurance product and you can have one with your partner so that it will pay out until the passing of the second person, as I recall, which certainly is a useful benefit.

There is of course then no legacy to you as you've essentially bought a retirement product. That living annuity gives us a lot more flexibility, flexibility in terms of drawdowns, although there are rules around that, but also flexibility in terms of where we're going to invest and how we're going to invest. 

And that raises a key point, which kind of ties to what I said in the intro. We sort of invest and we kind of think we're investing until the age of 60, maybe 65, depending on our retirement. But truthfully, we are still investing in retirement if we've gone with the living annuity.

comparison report living annuity retirement annuity

Kelin Pottier: Absolutely. So I think that's where the distinction is critical between a guaranteed annuity and a living annuity. With a guaranteed annuity, the insurer takes on any risk of you out living your investments. They guarantee to pay you income until you're dead. You're not exposed to any market risk.

So it doesn't matter what markets do, it's of no concern to you because the insurer has taken all that risk. When you're investing in a living annuity, you're effectively self insuring. So your idea is to put your money to work in a way that can generate investment returns such that you can live off of the investment returns without necessarily needing to dip into the capital.  

And so that does introduce some risk. There is a risk that you outlive your capital because you are not investing appropriately, you're not drawing down a sustainable rate or you're not paying attention to the impact fees are having on your investments.

But we've seen time and time again, from our research, more than 75% of retirees actually choose to go with the living annuity because of all the flexibility benefits. 

For example, you get to have flexibility over your income. If next year you need more income than you needed this year, you can adjust your income. If the year after you need less, you can adjust that. 

If you would like to have control of the investments - would you like to invest in equities? Would you like to be more conservative in bonds? Would you like to invest offshore to be able to generate more hard currency income in retirement? That's an option that's afforded to you by a living annuity.  

And like you said, the big difference with a living annuity and a guaranteed annuity from an estate perspective is that with the guaranteed annuity, when it's done, it's done. However, with the living annuity, if you pass away and there's still capital left in your living annuity, you get to bequeath that to your beneficiaries who you nominate. 

And so not only is there a big legacy element, which investors absolutely love, especially those who've been planning and saving diligently throughout their working careers, but investors also find it particularly helpful because it's a very effective estate planning tool as there's no estate duty levied on the proceeds from your living annuity on your death.

Brett Mackay: And sorry, just to add to that as well, with a living annuity, you can always transfer from a living annuity to a guaranteed annuity later down the line. So it's very important to keep that flexibility option open just because down the line you might come into a situation where you would like to transfer your living annuity to guaranteed annuity and you can do that. Whereas if you start in a guaranteed annuity, that is essentially the end of the road. 

Simon Brown: I take your point. And that was my follow up question - could I do a combination of living and guaranteed? And I know a lot of folks will say I use my guaranteed perhaps for medical and food so that I know I'm going to eat and I know I can go to a doctor and then the rest, which is the fun stuff, the wine and the holidays, I use the living for.

And is there also a benefit perhaps to multiple living annuities? To your point, Brett, at some point I might want to convert some. So instead of putting everything into one living annuity, maybe three or four or two. I don't know what the magic number is. And then it gives me optionality as time goes.  

Brett Mackay: Great. Yeah. So you can have more than one living annuity. It does help with flexibility. For example, you could have two different living annuities with different drawdown rates, different asset allocation, and you can stagger them into the guaranteed annuities as time goes on. So it does help with the flexibility side of things.

Simon Brown: One of the risks of a guaranteed annuity is inflation. You can get them where they pay you an amount and it doesn't increase, in which case inflation is going to overtake you. The other is that you can take it with annual increases of a number and almost any number you pick at the point of retirement at some point is probably going to be below what inflation is because as you've seen over the last three or four years post pandemic, inflation can rear its head.  

That is a proper risk and a consideration, I think, which folks need to take into account if taking a guaranteed annuity because the terms and conditions are set on day one and they're in place until day end. 

Kelin Pottier: That's exactly right. And I think that's why many investors have sort of woken up to that fact and have seen the benefits in living annuities. Very simply, how is an insurer providing you that guaranteed income? The insurer is taking a pot of money and they are investing in long term government bonds and they're basically using those bonds to pay you your income as you go through life. Any additional income beyond that is really pooling benefits. That's you benefiting from anyone who's died before the actuaries estimated they would die. And some of those benefits get shared with other policy members. 

But we know historically, looking back at more than 120 years of data, bonds and cash, low risk investments have really struggled to keep pace with inflation, typically only delivering about 1 to 2% ahead of inflation, which doesn't support a high drawdown rate, which then increases with inflation.  

However, with living annuities, investors are able to invest in a range of asset classes, including stocks, property, offshore investments, which have historically been the most reliable asset classes to deliver above inflation returns.

When it comes to stocks, whether local or international, over the long term they have beat inflation by 7% a year plus minus on average. And so that is an option that's not really available to you in a guaranteed annuity where you can't choose an underlying investment portfolio, you're not able to control your inflationary increase of your income necessarily throughout the year.

Simon Brown: Yeah, I want to come a lot more to asset allocation, but Brett, if I can come to you on drawdowns, there are legal requirements in terms of minimum and maximum drawdowns, aren't there?

Brett Mackay: That's correct. So the minimum is 2.5%, the maximum is 17.5%. Obviously the lower the drawdown, the more sustainable the fund will be over time. As a general rule of thumb, we're looking at a 4 or 5% drawdown as a sustainable level. I think over 6% you'll start to put a bit of pressure on the funds in terms of the long term sustainability. So there's something to try and control if possible. 

Obviously we understand that clients have needs and income requirements, but if you can control your drawdown to a sustainable level, it will certainly help in terms of the long term sustainability of the fund. What I've also found is when clients do go on retirement, they are able to take a tax free portion. And if they do take that tax free portion, it helps with regards to the impact of the first few years of the drawdown.  

So if you have a lump sum, you have a bit of liquidity, and that puts less pressure on your first two years of drawdown, meaning you can take a lower drawdown, have a more sustainable fund and still have the liquidity to provide the income that you need for at least the first two years.

Simon Brown: That is deeply cutting. I hadn't actually thought of that because yeah, if my memory is correct, 2/3 has to buy you an annuity. The rest you can take cash. There is that tax free component you can take as well. And that can give you, depending on your needs, a couple of years of buffer, which again, because at the age of 60 or 65, your life expectancy is quite potentially 30 years.   

And truthfully, as I say that, I've realized I've been saying that for a decade or two, it might be 40. I mean, 100 is no longer the scary crazy number it used to be, particularly looking at the young ones of U2. Lots of us are going to get to that 100. And it does give you some flexibility that drawdown.  

And I'm interested. You said that it's 4 or 5% because I was going to ask the question. And it's propped up in the Q&A box. Is that 4% the magic number? Certainly you're saying it is around there. What's important is that needs to include fees.

And Kelin, you mentioned fees earlier, Brett, fees are, we know, and I think 20 years ago, perhaps we didn't, but I think these days we are aware of the significant impact that fees can have. For example, if I'm drawing 4% but my fee is 4%, well, actually I'm drawing effectively 8%, correct.  

Brett Mackay: And it's something that an investor can control. As you mentioned earlier, inflation is out of our control. But fees are something we can control. It's very important to understand what your EAC is, which is your effective annual cost. And essentially that's the summary of all the fees and charges that you will have on your investment. If you can find that out, it's great to know what your cost is. If you don't know, it's good to do a cost comparison. 10X does cost comparisons where we look at the fees and returns.

Simon Brown: Yeah, I think fees are one of the biggest destroyers in terms of wealth over time. A small fee, one or two percent might not sound like a lot now, but you compound that over 20 or 30 years, massive difference in what you end up with at the end of the day. So yeah, fees are very important.  

I want to touch on that EAC, effective annual cost, and I've chatted with colleagues of yours before and they always come back to it. As I understand, that is a legal all in definition. If I go to my provider and say I want the EAC and they say we don't have one or something, my short answer is then find another provider because that really is the cracks number and it is the true number which reflects all costs, correct?

Kelin Pottier: It's a summary of all the fees.

[Connection lost briefly with Brett]  

Simon Brown: We lost you for a moment, Brett, but you are back. I want to touch on asset allocation because when I speak to smart investors, and I spend a lot of time speaking to people around individual stocks, you know, should we have CMH or should we buy cars, should we have Microsoft or NVIDIA or the like. 

But my sense is that asset allocation, and folks will say to me, is perhaps the even more important question. Getting that offshore local, that bond cash equity, getting that blend is perhaps the bigger challenge, correct?

Brett Mackay: I think a common mistake from retirees is they go too conservative too early. It's very important to make sure that you have the correct asset allocation just so you can essentially grow your funds, beat inflation and be diversified. We know with diversification it helps with regards to risk.  

So yeah, diversify your investments, make sure that they are spread out and invest in the correct asset allocation according to your time horizon. If it's a shorter time horizon, then yes, you maybe want to be in more defensive assets, bonds and cash. But certainly, as we mentioned, living annuity time horizon is 20, 30, even 40 years. So you want to be exposed to the correct asset classes and we've seen over time with history, equities outperform inflation and that's really where you want to be invested.

Simon Brown: Kelin, is there an argument, and a lot of folks will look at our stock market, I was going to say load shedding, which we haven't had for two months, touch lots of wood, and say I want to be as much offshore as possible. Two questions, is there a limit to how much I can take offshore in a living annuity? And is there a downside to saying take me offshore 100% or as much as that limit is?

Kelin Pottier: Sure. First let's deal with the question of whether there are limits. A living annuity is not governed by Regulation 28 of the Pension Funds Act. So you're not limited to 45% offshore. You can invest up to 100% offshore with a living annuity and some investors do choose to do so.

So why do investors want to invest offshore? Well, from our experience, the two most common reasons investors are seeking additional offshore exposure is:

1. To access broader investment opportunities. To access investments in some of the fastest growing countries in the world, in sectors and industries and companies that are titans of global industry that are not available in South Africa, to access certain sectors such as AI, for example, which there's very limited opportunity to access on the JSE. So definitely in terms of broad opportunities, investors appreciate that.

2. Diversification. Investors are looking to diversify away from country specific risks. And while it's not specifically limited to the investment portfolio in the living annuity, many investors also consider the rest of their assets that are not sitting in their post retirement portfolio. 

So you might have a house and a holiday house, you might have a business that's in South Africa, you might have the rest of your wealth in South Africa. And so they see this as an opportunity to diversify.

And the other reason is investors who are actually spending more and more time out of the country where their expenses are more and more in hard currencies than in rands. And so investors are looking to match their assets and liabilities. 

So those are the reasons people like to invest offshore. But to your question, how much should you invest offshore, the answer is non-zero and the answer is not necessarily 100%. More often than not, the answer lies somewhere in between. 

So the two things to consider with investing offshore is first and foremost matching your assets and liabilities. Are the bulk of your expenses in Rands or are they in dollars, pounds or euros as the case may be? Are you spending most of your time in the country or are you actually split-life living, visiting grandkids in Australia and the UK and wherever, or are you living offshore? Those are the kinds of factors to consider. The more your expenses are in Rands, the majority of your assets should still be invested in Rand-based assets so that you don't have that income mismatch.  

And then the other factor really comes down to exchange rate fluctuations. The Rand is one of the most volatile currencies in the world and the exchange rate can either work for you - if your offshore investments are performing positively and the Rand depreciates, you get a double whammy and you get strong returns. If your offshore investments are performing strongly and the Rand actually strengthens, it can offset those returns. 

And sometimes you have actually the double whammy to the downside where offshore investments are performing poorly and the Rand is in a position of strength, in which case you can magnify the losses.

So when it comes to a living annuity where you're actually drawing down income from your portfolio, you have to consider the volatility mismatches. And so you must be willing to be able to endure the fluctuations of currency and the impact that has on your income, particularly for investors who have a higher drawdown rate. You really want to be careful of taking on too much volatility in your investment.

Simon Brown: Is there a magic number? 

Kelin Pottier: Our research has shown that as you start diversifying offshore, you increase your probability of success so you mitigate the probability of running out of money and that really sort of gets to peak benefit at about 40% offshore, between 40 and 60% offshore. That seems to be the range where it's adding the most diversification benefits to a Rand-based investor without compromising the success of the living annuity.  

Beyond that, for a Rand-based investor, the currency actually starts increasing the probability of running out of money.

Simon Brown: Yeah. And I take the point. I was chatting with someone over the weekend, a currency trader, he says in the week post the elections, the Rand could be 17.50, it could be 19. And as an investor, you don't want to get caught on the wrong side of that. You need to match expenses with the offshore investment.  

The question is coming through, Brett, I'm going to throw it to you because James is saying if I start off with a riskier allocation, can I switch to a lower risk annuity later in the day? Truthfully, you don't need to switch, as I would understand, you can change the assets within, or do you need to switch 100%?

Brett Mackay: Correct. So you can change the underlying fund within the living annuity itself. So you can change from an aggressive fund to a conservative fund and back to an aggressive fund depending on what you're looking to do.  

So there is flexibility in a living annuity, as we have discussed, of being able to take breaks from the market, get back into the market. Obviously it's very important to still look at your long term time horizon. I don't think anyone should be switching in and out of portfolios too often, but it is important to look at where we are in terms of the market cycle and understand what's coming in here as well.

Simon Brown: Yeah, I mean, this should almost, because what you don't want is someone to be effectively trading within their annuity because truthfully, most of us will lose money as a trader. But I suppose a review, maybe it's an annual review, maybe it's every five years or something. You started the process with certain things in mind. Life changes for all sorts of reasons. Sort of have that regular review to decide if that initial allocation still meets what you're trying to achieve and if it is meeting it.

Brett Mackay: 100% correct. And as we say at 10X, time drives investment risk. So initially when we set up a living annuity, we look at the time horizon and base the investment selection on the long term time horizon as opposed to the short term market noise. It is easy to get distracted, but I think part of our job as consultants is to guide the clients and kind of redirect them to that long term objective that they're trying to get to.

Simon Brown: You almost, and I had the conversation with a financial advisor recently and at the end of it, I said to them, you're almost like a therapist. I mean, you almost imagine often times you're trying to talk people down from the ledge. They've got fear, they've got FOMO. And it's about reminding folks that this is a long term process. And the things that we are terrified of today, we usually have completely forgotten about in a year, never mind five years.  

Brett Mackay: Correct. It's all about managing emotions and understanding. 

Simon Brown: Louise is asking what the current life expectancy for South African males and females are. I don't know if either of you gentlemen know.

Brett Mackay: Well according to actuarial tables, most of the actuarial tables predict an age of 85 as a life expectancy, but that is completely subject to change.

Simon Brown: I take your point. And that's sort of the challenge, right, with guaranteed annuities is that there's no one number. It's very much driven by your personal circumstance. So the insurer will want to understand your medical conditions, understand your specific life expectancy over and above sort of the income you're looking to draw.  

Yeah, and it's that, and again, this is a 15 year old number, so it's a bit out of date, but a married couple at the age of 60, when they turn 60, assuming they're the same age, 50% chance one of them would live to be 90. And statistically it would be the female. And that's, if anything, skewed out to longer, certainly not shorter at any point.  

Is there, I mean, Brett, one of the fears undoubtedly is about running out of money. And we've spoken around that. And part of that is where we can go get a guaranteed annuity, essentially an insurance product. But the living annuity, it needs to be, you, I suppose you sit down and you kind of think, well, what is that life expectancy going to be? And let's say we pick a number and you're currently 65 and you take the 85 expectation. You've got to almost err on the side of caution, I suppose, rather than then say, well, it's 85, because of course it might not be. And making sure that you have something left, because the last thing you want is in your final years to literally have run out. We can manage it, as I said, with the guaranteed. But again, it's that revisiting and recalibrating, right?

Brett Mackay: Then it's all about controlling the controllables. Your drawdown, your fees, something you can control, and markets, inflation unfortunately out of our control. So if you can control the controllables, ensure that your drawdown is low, you have low fees, it does give you a chance of ensuring that those funds last beyond life expectancy. You can even hand them over to a beneficiary to inherit.

Simon Brown: Daniel is asking a question. He says "I currently have a 10X Reg 28. I also have discretionary funds invested. Is it possible to donate the discretionary funds into the Reg 28?" My understanding is it is. There are limits - 27 1/2% and R350,000, but those limits are for the tax benefit. I can exceed those limits.  

Brett Mackay: Yeah. Daniel, you can. And here's another fun fact, Kelin, maybe you can help on this or Brett, if I exceed the limits, I don't lose the limit. I can roll it into future tax years.

Brett Mackay: Yeah, correct. It just rolls up to the following year.

Simon Brown: Yeah. Or the following, following, following, whatever as the case may be. Vincent's asking how do you insure against risk of longevity? And I take the irony of risk of longevity, but I think he's 100% right. Change from aggressive to moderate does not necessarily protect against that. I mean, it's a good point. And my sense is that we almost manage the risk of longevity by saving more. But there's another trick to it. I remember running the numbers on this once. And in fact, it might have been, I did it with one of your colleagues at 10X Investments where delaying retirement by five years, I mean, if I remember correctly, a 10 year delay in retirement could double your money into retirement because A, you had an extra 10 years of saving into the fund, B, you had an extra 10 years of growth and C, you had 10 years less in retirement, so less worries about longevity. Is delaying retirement that powerful? If you get to the point and you think I simply haven't quite got enough?

Kelin Pottier: Yes, Simon. So delaying retirement is absolutely possible. And why some investors delay retirement is because one, they don't yet need the income. They potentially still have enough discretionary savings and investments in the bank, or they're still earning an income either full time or part time. 

And so what that effectively means is their money gets extra time to allow the benefits of compounding to do its magic. And then you start off with a bigger pot of capital at retirement, which can sustain you for longer. 

But to go back to the question of longevity risk, how do you make sure you don't outlive your capital? It is painfully simple. As long as you only live off the returns and don't touch the capital, you will never run out of money. 

So the very simple formula is your returns should equal inflation plus your drawdown plus your fees. So if you're getting 10% returns, inflation's 5%, your drawdown is 4% and your fees are 2%, well, actually you're drawing down 11% when your returns are only 10%, which means you now are starting to take some of the capital. You're not just benefiting from the returns.

A very easy way to fix that one would be lowering your investment fees. So changing to a living annuity provider like 10X can drop your fees down to say 1%. All of a sudden you're now only living off the returns. Or you could adjust your drawdown rate, say from 5% to 4% or 4% to 3% and bring that equation back into balance.  

This is how wealthy people have lived for generations and passed on generational wealth. Live off the returns of investments, never touch the capital, and you have zero chance of running out of money so long as you keep those two sides of the equation intact.

Simon Brown: I never thought of that. You've kind of boggled my brain there. There is a perfect 100% zero chance. I take the point. And some years your returns mean you're drinking box wine, not fancy Bordeaux or Sauvignon Blanc. 

You're asking a question and the answer is simple Sibongile. Is it advised to start one's financial planning journey at the age of 23? I mean, Brett, the answer is yes and congrats for being 23 and on a retirement webinar.

Brett Mackay: Yeah, 100% correct. The earlier you start the better. As we know compound interest is our friend. Speaking to a lot of younger investors, what we're seeing is their investments grow through our time, they really got value from starting early. So yeah, definitely get started as early as you can and look at the range of different investments that you can invest in as well.

Simon Brown: Yeah, and at the age of 23, don't worry about being low risk because what you have on your hands is just time. You've got maybe 80 years of living. Rakesh is asking a great question - is it possible to partially switch from a living annuity to a guaranteed annuity? And I think the answer is no. Kelin, we were saying up front that's why to structure it cleverly and maybe have a couple of living annuities, maybe instead of just putting it all into one, put it into two or three. They might be identical, but then you could switch a part into a guaranteed annuity.

Kelin Pottier: So it is possible, but not directly. You can't just switch a part of one living annuity to a guaranteed annuity. But it is possible to split a living annuity. So an investor might have one living annuity, they could split it into two or three living annuities and from that point they could transfer one of the living annuities. But the first step would have to be to split up your investments. If you're just transferring from one annuity to another, then unfortunately it has to be all or nothing.  

Simon Brown: Gotcha. Okay, I haven't done that either. Luis is also asking a great question. He says "My current RA, can I choose to say use 50% for a living annuity and leave the remaining 50% in my Reg 28 product?" Can I cash out half the Reg 28 and say keep the rest for now?

Kelin Pottier: Unfortunately not. When you retire from a fund, you have to retire from the entire fund. Meaning you can take out a third, but the remaining 2/3 will have to be annuitized. 

Simon Brown: I thought so. Rakesh says "Can I purchase a living annuity for my wife with my RA at maturity?" But does it have to be my RA, my living annuity?

Brett Mackay: Yeah, it has to be in your name, your living annuity. 

Simon Brown: Sorry folks, we're running into the laws here. There ain't nothing we can do about the laws whatsoever.

Vincent, I think is going to have a great question. Vincent, you're saying the role of an advisor is important to all of the options you are talking about. Do the options require the advice or are the advice fees ongoing?  

It's a good question. You mentioned Brett, fees start from 0.86% and go down. Is that including my ability to phone you on a regular basis and say, Brett, please help?

Brett Mackay: Correct. Yeah. So as 10X consultants, we love assisting clients. We help investors directly and we're just here to kind of hold their hand through the process. So yeah, there is someone at the end of the line that they can speak to, send us an email, give us a ring. Always happy to help.

Simon Brown: Thanks. A lot of questions coming around that splitting. Kelin had the solution there. You break it into pieces and then you can transfer some into a guaranteed annuity. You can of course at the beginning also put some into that guaranteed annuity.  

The address is saying 57 years old, have a Reg 28, is it better to keep in the Reg 28 or in a living annuity? My sense Kelin, the growth would be potentially the same. They could be invested in the same funds. The distinction is the living annuity - you're going to have to take at least 2 1/2 percent which you might not need. So maybe staying in Reg 28, if you're still working, is the easier answer.

Kelin Pottier: Absolutely. The only question is do you need an income from your savings or not. If you don't need an income, then remain in your pre-retirement product. You can continue contributing to it. You can continue letting the investment growth work in your favor. You don't want to be drawing down from investments if you don't need to, rather put it to work.  

Simon Brown: A couple of people asking this question. Kelin, I know you did answer, but let's go to it again. On the passing of both spouses, does death duties apply, does it go into the estate, does it go straight to the heirs?

Kelin Pottier: So this is the big benefit of the living annuity, really, over and above the flexibility and the control and all the tax benefits. The big benefit as well, which you absolutely cannot get in an insurance type guaranteed annuity, is the legacy benefits.  

So when you pass away, whatever capital is left in your living annuity then goes to whoever you nominate. If it's a spouse, then your spouse can take out a living annuity with the proceeds and continue earning an income. Should your spouse pass away, if there's still capital left in your spouse's living annuity, that capital can be passed on to whoever the spouse nominates. It can be a child, it can be a family friend, it can be a charity, for argument's sake.

So long as there's capital remaining, it can be passed on. Unlike a guaranteed annuity, which might come with a joint life benefit, which means you're going to get paid an income until the death of the last spouse, a living annuity, so long as your capital remains, can effectively be passed on for generations.

Simon Brown: David's got a great question. He says "I'm 70 years old. Last year I took out a Reg 28 RA. Can I now transfer that into a living annuity?" 

Kelin Pottier: You can retire from that tomorrow and convert that to a living annuity at any stage.

Simon Brown: Gotcha. But I'm going through a lot of the questions we have answered and we are starting to come up against time.  

Alan is saying the 0.86% that you mentioned, Brett, what sort of fund costs are on top of that? Because of course that's something that the investor is going to have to incur as well. And I appreciate there are different funds with different fees, but do we have a sense of the ballpark around the fund fee? Brett, I think Kelin has a bit more information on the fees.

Kelin Pottier: Sure. I think it is all going to depend on what portfolio the investor selects. So some of our most popular funds, which contain a high exposure to equities and properties and have defensive assets like bonds and cash, a well diversified balanced portfolio, we typically, when you've added together your living annuity fees and everything, you come up to a fee of less than 1%. So this is for everything.  

If you just looked at the transaction costs and underlying costs in the investment portfolio, it's about 0.15% on our most popular fund. For investors who choose different portfolios, so for example, investors looking for more offshore exposure, those can come with additional fees. But the investor can request an EAC quote which shows your all-in effective annual cost, showing the cost of your living annuity, your investment portfolio and your full fee that you pay at the end of the day.

Simon Brown: Mervyn's asking a great question. Can I invest in a hedge fund via a living annuity?  

Kelin Pottier: We at 10X don't offer hedge funds. So I'm not entirely sure if other providers do. It would have to be provider dependent. But from a regulatory perspective there shouldn't necessarily be any obstruction from investing in a retail hedge fund.  

Simon Brown: Arthur, you're asking if Kelin works for 10X? Yes. He's not independent. He is with 10X. He's asking if there is an advice fee to get information from you. And as I understand, Brett, that's more your scope. Again, that's part of the EAC effectively. You're not going to hit them with an invoice at the end of the conversation, correct?

Brett Mackay: That's part of the fee. And I think from our side, it's all about educating clients as much as we can. I think the more informed they are, the better decisions they make. So it's not us making decisions for them, it's educating them so that they can make the right decisions at the end of the day. And that's just part and parcel of what we do.

Louise, you're asking for the website where you can see different performances within the estate. Is there? I mean, can you? Because of course you folks would manage it, but you'd put different funds in it. I suppose you could then give a sense of what historic performance has been with the always asterisks of past performance is no guarantee of future.

Kelin Pottier: Yes, I mean past performance does not guarantee future performance. As you know, if you look at our flagship balanced portfolio, that portfolio has delivered over 15% a year compounded for 15 years. 

So what does that mean? It means if you're generating 15% a year, you're effectively going to double your money just under every five years. So those are stellar returns, some of the best in the industry, and it also depends on the time horizon.  

So, for example, the last decade has been really favorable for offshore and US equities. So our international portfolios have delivered returns, some exceeding that. But again, past performance does not guarantee future performance and investors should pay careful attention to having the right asset allocation and the right onshore and offshore exposure for their time horizon and their investment objectives.

Simon Brown: Burt, you're asking about the drawdown, is it based on the initial fund value or the current? It will be based on the current. You're saying if I defer my pension, who does it stay with? Well, it would stay with wherever that pension is at this point in time. You could move it into a preservation fund or the like, but it would still potentially be invested at its original place. Or if you wanted to move it, if you thought there was a better option.

Petrus is asking about moving overseas. Yes, if I have retired and I have myself a living annuity, Brett, and then I discovered that I'm heading off to live in Guatemala or somewhere, can I cash it out? As I understand it, it would still exist. It would still pay out in Rands and I would have to convert those Rands to wherever I was.

Brett Mackay: Yeah. So you can't cash out all as one lump sum, but what you can do is increase the drawdown to the maximum, get that income paid to your South African bank account and then send it overseas. That is what some clients do at 10X just to ensure that they get the capital out as quickly as possible.  

Simon Brown: Oh, this is a great question. JP says "Retired four years ago, took out the R500,000 tax free, put the rest into an annuity." Can he go claim the extra R50,000? Because I think it was last year's budget when the finance minister moved the 500 to 550. Can he claim the extra 50 or was it a case of he retired two years too early?

Kelin Pottier: Unfortunately investors would be subject to the prevailing regulations at the time. So unfortunately four years ago the tax free lump sum withdrawal from a retirement benefit was R500,000. Unfortunately, there's no lucky packet this year.

Simon Brown: Yeah, no, there isn't. And unfortunately that yeah, when you do the process, whatever the laws are at that point in time are the applicable laws.  

Hank, you're asking can you split? If it's my Reg 28, could I get 2 living annuities, one for me and one for my spouse? Brett, you can get two living annuities, but they'll have to be in his name or in your name. It won't be able to be split enough for your spouse. They'll have to be both in his name.

Folks, questions are coming through. We have covered them. We'll leave that there. We have also hit our time.

So then, Kelin Pottier from 10X Investments, solution strategist, and Brett Mackay, investment consultant at 10X. Appreciate both of your times. Just a final concluding question from myself for each of you.

Kelin, I think the two key points that we made, and one of them was right up front, which was sort of give thought to a blend of living and guaranteed annuities. And maybe you don't need the guaranteed annuity, but I think it's a conversation that perhaps is worth having. And perhaps more importantly, as much as 100% offshore might intuitively seem attractive, Rand strength can hurt and you need to match your income with your expenses in terms of currency to a degree.

Kelin Pottier: Yeah, completely agree. For those investors who are on the fence, there are many good resources out there we can read up on the benefits and drawbacks of each of the options. Equip yourself with the right information. If you're at the point of retirement and you need to make a decision and you still aren't quite sure, living annuity is always a great choice because that's a completely reversible decision. 

If you decide you want to actually go into a guaranteed annuity because it makes more sense, then you can do that. But if you go straight into guaranteed annuity, that's one and done. It's irreversible and that's where you're stuck. So if any investors are on the fence, rather take your time, do your research, and if you must make a decision, try and give yourself some options.

Simon Brown: That's a good point. The guaranteed annuity is not reversible. That perhaps is the key point.

Brett, for you, and I started this by saying that we hit retirement and we have the biggest questions of our life, which is now we've got a giant pool of money. What do we do with it? The port of call is to give 10X a ring and chat to folks like you because there are a lot of options. And truthfully, you're one of the experts out there who can help us through. I don't want to say it's a minefield, but it's certainly a lot of complicated and hugely important questions that we have.

Brett Mackay: Great. I think it's important for retirees to remember that they're not alone in this journey. There are professionals that can help guide them through, whether it comes to choosing the appropriate drawdown, looking at the fees, even the asset allocation. Those are all really important factors that someone needs to consider with their living annuity.  

And you know, not every person on the street understands exactly how to do that correctly. So, yeah, we're here if they need any help.

Simon Brown: Yeah, I like that. You're not alone. Speak to professionals. There's nothing wrong with speaking to two or three and finding one who you like. And always, always, always, always ask about that EAC.

Ladies and gentlemen, we leave that there. We are seconds away from the full hour. Gentlemen, really appreciate your time today. I learned a bunch, which is really great. I hope that everyone on the webcast learned a bunch as well.  

We appreciate everyone who attended today. You had anything you could have done with your hour. You decided to sit with us and get a little bit smarter about your retirement.  

We appreciate that everyone. Look after yourself, stay well and as always, if you can, look after somebody else as well. Cheers all. Thank you.

Brett Mackay: Thanks very much, Simon.  

Kelin Pottier: Thanks.

10X Investments is an authorised Financial Services Provider (FSP number 28250). The content herein is provided as general information and is not intended as nor does it constitute tax, legal, investment, or financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002.

The 10X Living Annuity is underwritten by Guardrisk Life Ltd.

10X Fund Managers (RF) (Pty) Ltd is an approved manager of collective investments schemes in securities in terms of Section 42 of the Collective Investments Schemes Control Act, 45 of 2002.

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