Living annuities: The growing choice for retirees

Building blocks to a lasting Living Annuity

Our panel of experts discusses living annuities, sustainable drawdown rates, offshore investing, and everything else one might need to consider to ensure a comfortable retirement. Read more

In modern times, more and more retirees are turning to living annuities as opposed to life annuities, also known as guaranteed annuities. While guaranteed annuities can provide you with a stable and predictable income, they lack the flexibility of living annuities.

Living annuities give retirees a sense of control, alongside the ability to pass on the residual value of their living annuity to nominated beneficiaries outside of their estate (so tax free). In this article, we will explore living annuities in greater detail and highlight the key advantages that are drawing more and more retirees in.

What is a living annuity?

A living annuity is a flexible investment vehicle and retirement income solution that gives you control over how your capital is invested. It is a long-term investment that may last around 20 to 40 years, funded by capital transferred to the living annuity upon retirement from a retirement product, such as a retirement annuity or a preservation fund.

The savings are then invested, and you’ll draw a regular income for your retirement years. The drawdown rate is the percentage of the total value of the annuity that you draw as income. You can decide on a drawdown rate of between 2.5% and 17.5% p.a. You can also select the frequency of the payments, which can be made annually, biannually, quarterly or monthly, depending on your preferences.

Why are retirees choosing living annuities?

Upon retirement, you are presented with a choice in terms of what to do with your savings. You’ll need to decide on an annuity; either a life annuity or a living annuity. In this section, we’ll unpack exactly why an increased number of retirees are opting for living annuities over life annuities.

Investment flexibility: Asset allocation and 100% offshore investment options

A living annuity offers investment flexibility, giving you the choice to decide on which funds to invest in; different funds include a different mix of assets, each geared towards different investment profiles. At 10X, we offer a range of funds to choose from, allowing you to diversify across the various asset classes, as well as locally and offshore.

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The fund that you choose to invest in should match your investor profile. You can also adjust your fund selection as your needs and financial goals change over time. When choosing your funds, you would consider factors such as your risk-tolerance levels, investment timelines, market conditions, your financial circumstances and your retirement goals. You may also choose to invest your funds locally, offshore or a combination of both. Your risk tolerance refers to how comfortable you are with short-term market volatility and the market potentially losing value, but then regaining that value again (as markets always rebound eventually) and continuing to grow. Your investment horizon is how long you envisage needing your annuity to provide for you.

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. These asset classes include equities, bonds, real estate (property) and cash. Equities are the most volatile of the asset classes, but they are also most likely to generate the best returns over the long term. As data suggests, equities have historically produced returns above inflation by around 7% annually (based on JSE All Share Index performance versus CPI from 1960-2020), although past performance doesn’t guarantee future results.

As living annuities are long-term investments, it generally makes sense to include some equities in the mix. Bonds will generally add stability to a portfolio, but they may also generate lower returns than equities. Real estate may be a good hedge against inflation, and cash is the most stable and liquid of the asset classes, but it is most likely to generate the lowest returns.

You may also wish to invest some, or all, of your living annuity offshore. Living annuities are not subject to Regulation 28 of the Pension Funds Act, meaning you can invest 100% offshore. This can provide a good hedge against any local market instability in South Africa and subsequent depreciation of the rand. Diversifying across the different asset classes, as well as offshore, spreads your risk and allows you to potentially take advantage of the different market cycles.

Don't shy away from offshore investments in your Living Annuity

If you are a retiree with a living annuity or are close to retirement and looking at investing in a living annuity, you need to consider to what extent you should be invested offshore. 10X offers up to 100% offshore investment capability to help hedge the risks of the local market. Read more

One of our flagship funds is the 10X Your Future Fund, a carefully designed fund created to deliver cost-effective exposure to a range of local and international asset classes. With a greater allocation to growth assets like equities and property, the fund is best suited to investors seeking long-term capital appreciation to build wealth.

An option for those looking to invest 100% offshore is our 10X MSCI World Index Feeder Fund. This provides investors with comprehensive offshore exposure by tracking the MSCI World Index, which captures the performance of large and mid-cap equity securities across 23 developed market countries. The fund aims to closely match the index’s performance in ZAR, maximising long-term capital growth. Find out more about the funds we have available here. Fund information is correct as of the 19th of September 2025.

Adjustable income

Another major advantage of living annuities is the adjustable income, as each year before the policy anniversary date, you decide on a drawdown rate. As mentioned above, the drawdown rate is the percentage of the total value of your living annuity that you draw as an income per year. The policy anniversary date is the date at which your annuity started.

As a retiree, choosing a sustainable drawdown rate is important, as you need to always consider longevity risk. This is the risk that your living annuity runs out too soon and is unable to provide for you for your retirement years. Financial experts generally believe a drawdown rate of around 4% to be sustainable, but nothing can be guaranteed. This rate can be adjusted as you move through different stages of retirement. Perhaps your income needs or lifestyle change, as market conditions and inflation rates force you to adjust.

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The income that you would receive from a guaranteed annuity is fixed for life and cannot be adjusted. This means that there is less of a concern for you, as the investor, around market volatility, but there is far less flexibility. A guaranteed annuity is purchased from an insurance provider, and you won’t need to consider longevity risk, as this risk lies with the insurance company.

While the stability of life annuities may suit some retirees, we're seeing more and more retirees prefer the flexibility that comes with living annuities, as income can be adjusted to match your personal and financial circumstances. After all, if you need more capital in one year, you can’t get it from your guaranteed annuity.

Passing capital to beneficiaries

A big part of a living annuity’s appeal is the ability to pass on the remaining capital to your beneficiaries outside of your estate, and therefore tax-free. Upon your passing, you can leave any residual value left in your annuity to your nominated beneficiaries. This is appealing to retirees who would like to leave something to the special people in their lives when the time comes. Your nominated beneficiaries must be up-to-date at the time of passing, and beneficiaries will have a few options available to them if they have been nominated. They may:

• Decide to receive the annuity payments themselves.
• Take a lump sum cash amount and be taxed according to the retirement lump sum tax tables.
• Withdraw a lump sum cash amount, also taxed according to retirement lump sum tax tables, and transfer the remainder to a living annuity in their name.

The same does not apply for guaranteed annuities, as when you pass, the guaranteed annuity will go to the insurance company. The Retirement Lump Sum Tax Tables are as follows: (Taken from the SARS website)

The importance of fees

Fees are often overlooked, but they can have a major impact on your retirement outcomes, especially when these fees are compounded over the long term. In general, it makes sense to aim for a provider that offers low fees, as it may have a significant impact on how much you have available for your retirement years.

The Effective Annual Cost (EAC) is the annual cost of owning an investment over a one-year period of time. This was a standardised metric which was introduced by ASISA in 2015. All factors being equal, a higher EAC may mean that there are fewer returns available to be reinvested and potentially grow and compound over time. A lower EAC may mean that there are more returns available to potentially compound and grow over time. The EAC would be just one factor to consider when comparing and evaluating service providers.

The EAC would usually include the following fees:

Administration fees: The fees that are charged for administration-related tasks, such as compliance, reporting or tax.

Advisor fees: These are the fees charged by financial advisors. They may charge both an initial and an ongoing fee for their services.

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

Other fees: There may be other costs, such as exit fees applicable to certain products. Let’s look at an example which shows fees of 0.86% compared with fees of 3%. We will assume the following information for our example:

• Investment amount: R5 million
• Investment period of 25 years
• Drawdown rate: 4% (made as an annual payment)
• Return of 12% per annum
• An inflation rate of 6%

Example 1 (0.86% Fees): Real investment value is approximately R5.89 million.

Example 2 (3% Fees): Real investment value is approximately R3.62 million.

As this example shows, a relatively small difference in fees can have a significant impact on the real investment value of your living annuity, especially when compounded over time. Note that this example is for illustrative purposes only, and actual results may vary.

10X offers a low-cost, transparent fee structure with no hidden costs that is simple for investors to understand. We charge fees of 1% or less on most retirement products.

10X’s living annuity investment strategy

10X makes use of an index tracking investment strategy to keep costs low, combined with a more active approach to asset allocation. This is when a particular benchmark index, such as the S&P, is tracked and mimicked in the hopes of generating the same returns as this index. There may be fewer activities involved with index-tracking, which is part of what makes it more cost-effective.

Active management, on the other hand, involves a fund manager who aims to choose the winning stocks to get the best returns possible. There are a larger number of activities involved with this strategy, which often means higher costs passed on to the investor.

Data from the SPIVA Scorecards suggests index tracking outperforms active management most of the time. According to the latest SPIVA South Africa Scorecard (as of 31 December 2024), 60.84% of South African actively-managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten years ending 31 December 2024. At 10X, we strive to obtain excellent long-term results for our clients. Find out more about our investment strategy and approach here.

Who should consider a living annuity?

For retirees who prioritise flexibility and control, and want the option to pass their living annuity to their beneficiaries, living annuities are a strong option. If you are a disciplined investor who is happy to review and tweak your annuity, comfortable with taking some risk and willing to ride out market volatility, this is the perfect retirement income solution for you. If, however, you would prefer a regular and predictable income without the need to consider or fret over market volatility, a guaranteed annuity might be a better fit, despite its lack of flexibility.

Final thoughts on living annuities and retirees

In conclusion, a living annuity offers flexibility in terms of asset allocation and drawdown rate as well as the option to pass on any residual to nominated beneficiaries. 10X offers a transparent and low-cost living annuity that focuses on the long-term growth of your capital.

10X simplifies your retirement with a straightforward approach, low fees and a superior track record. To find out more about our living annuity funds or if you have any queries, get in touch with our helpful and experienced investment consultants here.