after-retirement

How to review and update your living annuity plan over time

3 October 2025

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Building blocks to a lasting Living Annuity [webinar + transcript]

A living annuity is a flexible post-retirement vehicle that allows you, as the investor, to draw an income during your retirement years while also retaining the capital invested, allowing for potential growth over time.

This is a long-term investment which may span a timeline of 20 to 40 years. As you can imagine, over such a long period of time, your circumstances may change. By reviewing your annuity regularly, you ensure that it still aligns with your goals and long-term financial plan, as well as its sustainability. In this article, we will provide a practical guide to help you review and update your living annuity appropriately over time.

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Why regular reviews are essential for living annuities

Reviewing your living annuity regularly is essential. Unlike guaranteed annuities, where review isn’t needed, you can benefit from reviewing and updating your living annuity, as markets are constantly in flux, and so might be your income needs. A major part of these reviews is to ensure that your drawdown rate is sustainable, that the fees and costs you are paying are not exorbitant and that your asset allocation includes the right amount of risk for your current investor profile.

A useful framework to consider is the Golden Equation. This framework is based on the concept that investment returns need to be greater than or equal to the sum of your drawdown rate, inflation rate, plus fees. In other words, Drawdowns + Fees + Inflation ≤ Investment Returns

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How often should you review your living annuity?

You would ideally look to review your living annuity once per year before its policy anniversary. This is the date by which all changes need to be submitted for it to reflect in the next year. You can also include a few more quick reviews during the year to ensure you are aware of how your living annuity is performing.

If you are going through any major life events, such as a divorce, a house sale or the like, this would also be a good time to review your annuity to ensure that it still aligns with your circumstances and goals. You may, for example, need to update your beneficiaries.

Step-by-step living annuity review checklist

When reviewing your annuity, it’s important to go step-by-step to ensure that you cover everything. Consider following these practical steps when making potential changes to your annuity.

Review your drawdown rate

Your drawdown rate refers to the percentage of your total living annuity that you withdraw as an income annually. Current regulations in South Africa state that you may select a drawdown rate of between 2.5% and 17.5%. This drawdown rate can be amended each year before the policy anniversary date, as your needs and financial requirements change over time.

Financial experts generally believe that a drawdown rate of 4% will be sustainable, allowing your living annuity to provide for you for your retirement years, but nothing can be guaranteed. A drawdown rate of more than this may mean that your annuity runs out too soon.

Assess your fees and Effective Annual Cost (EAC)

High fees can impact the growth of your living annuity, especially when these high fees are compounded over time. Lower fees, on the other hand, may result in more returns being available to be reinvested and potentially grow and compound over the long term.

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As you review your annuity, be sure to examine the Effective Annual Cost (EAC). This refers to the total fees and costs charged for owning an investment over a one-year period. Included in the EAC, you would expect to find the following:

Advisor fees: These are the fees which you may see charged by your investment advisor for guidance. They will typically charge both an initial and an ongoing fee.

Administration fees: There will be fees charged for the administration tasks related to the fund. This will be for compliance, tax and similar tasks.

Management fees: Management fees are the fees charged for the management of the fund.

Other fees: There may be other fees applicable to certain products, such as early exit fees. Let’s look at a practical example to illustrate the impact that fees may have. We’ll look at fees of 0.86% compared with fees of 3%.

  • Investment amount: R2 million
  • Investment period of 25 years
  • Drawdown rate: 4% (assuming an annual payment)
  • Return of 12% per annum
  • An inflation rate of 6%

Example 1 (0.86% Fees): Real investment value is approximately R2.36 million.

Example 2 (3% Fees): Real investment value is approximately R1.45 million.

The difference in fees of approximately 2% can potentially impact the real investment value of your living annuity, especially when compounded over time. A sustainable drawdown rate coupled with low fees may provide well for retirement. This example is for illustrative purposes only, and actual results may vary. You can learn more about fees here.

All factors being equal, you may find that a higher EAC means that there are fewer returns to be reinvested and allowed to compound over time. A lower EAC may mean that there are more returns available to be reinvested and allowed to compound over the long term.

10X offers an EAC calculator, an effective and free tool part of our online suite, allowing you to compare the EAC of 10X’s products with the EAC of your service provider. Of course, the EAC of your investment would be just one factor to consider when evaluating service providers.

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Effective annual cost calculator

At 10X, we focus on minimising fees as we understand the impact of low fees on our clients wealth. Our fee structure is simple and easy to understand, which can be a relief for investors. By making use of an index-tracking investment strategy, we can keep fees on the lower end of the spectrum. To find out our most up-to-date fee information, please visit our website.

Revisit asset allocation

Asset allocation plays the biggest role in the performance of your living annuity, accounting for over 90% of returns, as seminal research from Brinson, Singer and Beebower shows. This refers to the mix of different asset classes, like equities, bonds, real estate and cash, which your living annuity capital is invested in. With 10X, you can customise your underlying investment portfolio by choosing from different, expertly curated investment funds. These funds allow you to diversify across the various asset classes, each being geared towards a different investor profile.

asset allocation retirement annuity living annuity

You should select the appropriate fund for yourself according to factors such as your risk profile and investment timelines. Your risk profile refers to your risk tolerance levels and how comfortable you are with market volatility. Your investment timelines refer to how long you think you will need your annuity to provide for you. A more conservative investor, such as an older, more risk-averse investor, may prefer a higher percentage of bonds in their portfolio. A more aggressive investor, who is more risk-tolerant and in early retirement, may prefer a higher percentage of equities due to the longer timelines at play.

Equities are the more volatile of the asset classes, but they may also generate better returns. As data suggests, equities have historically produced returns above inflation by around 7% annually, over the long term (based on JSE All Share Index performance versus CPI from 1960-2020), but past performance does not guarantee future results. Including equities in your portfolio may be a good way to potentially beat inflation with your returns, especially when compounded over time.

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If you are looking for more stability in your portfolio, you may wish to include more bonds and cash. Cash is likely to generate the lowest returns of the asset classes, but it is also the most stable of the asset classes. Diversifying across the asset classes allows you to spread your risk while also taking advantage of any wins that may occur in certain asset classes.

Including some offshore exposure in your portfolio will allow for further diversification and potential gains from the international market. This may also add some protection against any political and local market instability, which could result in depreciation of the Rand. As you review your asset allocation, all of the above should be considered, as the idea is to align your personal circumstances and retirement goals with a fund designed for an investor profile like your own. At 10X, our selection of funds allows investors to diversify across the asset classes to balance growth and sustainability.

Account for inflation and real returns

As an investor, you want your living annuity to consistently outperform inflation. Inflation has the effect of reducing the purchasing power of your money over time. If you consider a bag of goods and services that you can purchase with R1000 currently, and compare this with what you would have been able to purchase with R1000 5 years ago, you can see the effect of inflation at play. The reduced bag of goods and services illustrates how inflation quietly reduces the real value of your income.

During your review, you should evaluate the returns that your annuity is generating and see how these balance out against inflation, fees and your drawdown rate. You should not just look at nominal returns; you need to focus on real returns (your investment returns after subtracting inflation). You should also consider how your drawdown rate interacts with inflation. A higher drawdown rate, combined with modest real returns, can accelerate the depletion of your capital. As mentioned above, making sure that your annuity has enough exposure to growth assets (like equities) can help protect against inflation risk over the long term. Referring back to the Golden Equation framework can be useful here. Balancing investment growth, inflation, fees and drawdowns gives you the best chance of maintaining your lifestyle throughout retirement.

Beneficiaries and estate planning

Finally, it’s important to make sure that your nominated beneficiaries are kept up to date, especially after there have been any significant changes in your life. Remember, unlike life annuities, living annuities can be passed directly on to your nominated beneficiaries outside of your estate, and therefore, tax-free. By ensuring that beneficiaries are up-to-date and correctly reflect your wishes, unnecessary delays can be avoided. If you have not nominated any beneficiaries, the living annuity may be paid out to your deceased estate and be paid out as per your testamentary wishes. This can result in a lengthy and costly process, which may mean that spouses or other dependents are without an income for this time.

Common mistakes retirees make when reviewing

There are some common mistakes investors make when reviewing, so it’s important to be aware of these in order to avoid making the same errors. Let’s have a look at some of these mistakes.

  • Emotional reactions to short-term volatility. It’s important that the long-term nature of investing is the main goal and focus, and you should ideally avoid any emotional decisions. Markets naturally move up and down, but making hasty changes to temporary dips can do more harm than good.
  • Paying high fees. Sometimes inertia can play a part here, and an investor may find that they stick with high fees even though there is a need to reconsider. It’s always worth reviewing whether you’re getting good value, and it makes sense to at least explore lower-cost options.
  • Ignoring the effects of inflation. Failing to realise the importance of outperforming inflation by including growth assets in your portfolio can have disastrous effects, such as your living annuity capital depleting too quickly.
  • Neglecting to update beneficiaries as needed. Not updating your beneficiaries, or not appointing beneficiaries in the first place, may result in delays and unnecessary costs for your loved ones when you pass away.
  • Failing to select a sustainable drawdown rate. Withdrawing too much, too soon, increases the risk of depleting your annuity before the end of your retirement years.

Final thoughts on updating your living annuity

Your retirement years can involve a lot of change, such as in your personal circumstances, income needs, lifestyle requirements, goals, and more. For this reason, it is important to regularly review your living annuity to ensure that it is still serving your needs adequately and aligned with your financial goals and situation. Regular reviews help ensure sustainability, peace of mind and comfort. Staying disciplined and making time to regularly review your living annuity is paramount, all while maintaining a focus on low fees, a diversified portfolio and sustainability.

At 10X, we simplify your retirement with low fees, a straightforward investment approach and an exceptional track record. Get in touch today and secure your future with 10X Investments!

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