Living annuity monthly vs quarterly payments: Which should you choose?

• Living annuity monthly vs quarterly payments offer different benefits, depending on your budgeting needs and other sources of income.  

• Monthly payments provide regular income, while quarterly payments offer larger amounts every three months.  

• Payment frequency does not change your annual drawdown rate, but fees, investment performance and asset allocation affect long-term sustainability.  

A living annuity is a post-retirement investment vehicle that will provide you with an income for your retirement years. Living annuities offer a degree of flexibility, as you can select the underlying funds in which your investment is held, as well as the income you draw. You are also able to choose the frequency of your income payments. You may consider receiving your payment monthly or quarterly, each of which will affect your budgeting and cash flow differently.   

Monthly income means you will receive a regular payment each month, while quarterly income payments mean a larger payment every 3 months. In this article, we will take a more detailed look at how to select your income payment frequency. This will be different for each person and will depend on factors such as your income needs, budgeting and whether you have any other sources of retirement income. 

How do living annuity income payments work? 

A living annuity is a long-term investment product that lets you draw an income while the remaining capital stays invested in the market. It is funded by your retirement savings when you retire, currently from age 55 in South Africa. You can choose your drawdown rate each year on your policy anniversary, the date your annuity started.   

You may choose a drawdown rate between 2.5% and 17.5% per annum, as well as how often you receive income payments: annually, biannually, quarterly, or monthly. These are separate choices, so you can select any drawdown rate and payment frequency. However, it’s important to aim for a sustainable drawdown rate. Financial experts generally suggest 4% as sustainable, although this is not guaranteed.  

You may also want to consider ‘The Golden Equation’, which can be a useful planning tool for managing your annuity. It is stated as follows: Drawdown rate + fees + inflation ≤  investment returns. Remember, this is just a guiding principle. You would ideally want your investment returns to be equal to or greater than the sum of your drawdown rate, fees and inflation in order to avoid seeing a decline in the value of your capital.   

At 10X, annuity income is paid on the 25^th of the relevant month. Monthly payments are made in arrears, while quarterly payments are made in advance. This is worth considering when planning your retirement budget, as the timing of your income payments may affect how you manage your expenses.  

Living annuity monthly payments: How do they work? 

If you choose to receive your living annuity income monthly, your annual income will be divided into 12 payments, providing you with a regular source of income throughout the year. This may be particularly appealing if you previously received a monthly salary and would prefer to maintain a similar income structure during retirement.  

One of the main advantages of monthly payments is that they can make budgeting easier. Most household expenses, including groceries, utilities, medical aid and insurance, are paid monthly. Receiving your annuity income at the same frequency can make it easier to manage these costs and avoid spending too much of your income at once.  

Monthly payments may be especially suitable if your annuity is your primary source of retirement income. However, if you have sufficient income from other sources, you may prefer the flexibility of receiving larger payments less frequently.  

Living annuity quarterly payments: How do they work?  

If you choose quarterly payments, your annual living annuity income will be divided into four payments, received every three months. Each payment will be larger than its monthly equivalent, assuming the same annual drawdown rate. This option may appeal to retirees who prefer managing their income over longer periods or having access to larger amounts at once.  

Quarterly payments can be particularly useful if you have other regular income sources or expenses that arise less frequently. You’ll also need to budget carefully to ensure that each payment covers your financial needs until the next one arrives.  

For example, you could divide your quarterly payment into three portions, setting aside enough money to cover each month’s expenses. This can help you avoid spending too much early in the quarter and running short before your next payment. You can also review your payment frequency at your policy anniversary if your income requirements or financial circumstances change.  

Monthly vs quarterly payments: Which is better for budgeting? 

Budgeting is one of the most important factors to consider when choosing between monthly and quarterly payments. Monthly income may be easier to budget for, since expenses are often paid monthly. With quarterly payments, you may receive a larger amount at once, so you’ll need to plan ahead for the next three months. It’s important to manage your spending carefully and stay disciplined with your budget.  

If you prefer receiving income monthly, as you may have when you were an employee, you might choose a monthly payment structure with smaller, more frequent payments. If you’re comfortable managing larger sums, a quarterly payment structure may suit you better. If you choose quarterly payments, consider setting aside enough to cover regular expenses throughout the three-month period.  

Asset allocation and your living annuity 

Asset allocation refers to the mix of asset classes in which your savings are invested within your annuity. This will usually include equities, real estate, bonds and cash. You can choose a mix based on your risk tolerance, investment timeframe and long-term retirement goals. You can also change your selection as your risk profile, investment timeframe and goals evolve. At 10X, we offer a range of diversified funds that combine different asset classes, giving you several options to choose from. 

Equities can help your portfolio potentially grow over the long term and may earn returns that outpace inflation. They give you exposure to companies and economic growth, but can also fall in value and fluctuate over shorter periods. Equities may be best suited to investors who can tolerate volatility and have a longer investment horizon.  

Bonds can provide income, diversification, and some stability within a portfolio. They are usually more stable than equities, but they do come with some risk. Values can be affected by inflation expectations, changes in interest rates, and the issuer's ability to repay its debt. Bonds are considered more conservative, but they may still generate some good returns.   

Real estate can generate income through rentals and distributions, along with providing exposure to real assets and economic activity. Property investments can contribute to long-term portfolio growth. Listed property may be volatile and impacted by interest rates, changes in the property market, economic conditions and occupancy levels. Real estate can often serve as a good hedge against inflation.  

Cash is usually viewed as the most liquid and stable of the asset classes. Cash is generally more stable than equities or real estate. It is possible that cash returns may struggle to keep up with inflation over the long term, which could affect purchasing power.  

At 10X, we offer a range of carefully selected funds that are well-diversified across the asset classes, allowing you to select a fund that best aligns with your investor profile and long-term financial goals. Visit our funds page to see the living annuity funds on offer. Asset allocation plays a major role in the growth of your living annuity, as can be seen in the research from Brinson, Singer and Beebower. 

The importance of fees 

Fees are especially important with income also being withdrawn from your living annuity. The portfolio must be able to support the drawdown rate and fees while keeping pace with inflation. Higher fees may potentially reduce the margin available to cover these above-mentioned factors. 

Here are a few of the terms that you may see displayed on your investment statement: 

Total Expense Ratio (TER): These are the ongoing expenses within an investment fund, calculated according to the applicable standard. 

Total Investment Charge (TIC): This combines the TER with transaction costs within the fund to give you the total investment charge. 

Effective Annual Cost (EAC): An annualised estimate of the impact of product, investment management advice, administration fees, and all other applicable charges. 

The EAC is a standardised metric introduced by ASISA in 2015. It combines related charges into a single annual percentage to show the total cost of holding an investment over one year. Depending on the product, these charges may include investment management fees, administration costs, advice fees, penalties, guarantees and the effect of loyalty bonuses. This makes it easier to understand and compare the cost structures of different products and providers. 

Assuming all other factors are equal, a lower EAC generally means that a larger portion of your money remains invested and available to potentially compound and grow over time. A higher EAC may mean greater pressure on net returns as fees compound over time. Costs shouldn’t be considered in isolation, as other factors like investment strategy, risk, and service and product features can also play a role.   Let’s have a look at some of the typical fees that you may be charged:  

• Advisor fees: If you are using an advisor, they may charge an initial and an ongoing fee. These will be for the services and advice that they give. 
• Administration fees: There will be administration fees for tasks such as compliance, reporting and tax. 
• Management fees: These are the fees charged for the management and running of the fund. 

Here is an example which helps to highlight the impact that fees may have. We will assume the following information for our example:   

• Starting capital: R2 million  
• Investment period: 25 years  
• Gross annual return: 10%  
• Inflation: 5% 
• Annual drawdown rate: 4% of the opening value each year  

Scenario 1 - 0.86% Fees: After 25 years, the living annuity would have an approximate value of R7 million.   

Scenario 2 - 3% Fees: After 25 years, the living annuity would have an approximate value of R4 million.   

These figures are nominal values and do not account for inflation. The above assumes constant annual returns, fees and drawdowns, with income withdrawn at the end of each year. This example is for illustrative purposes and real results may vary. To find out more about fees and their effects, review our article covering the math.  Our fees at 10X are low-cost, simple and transparent with no hidden costs. Please view our living annuity information page to find out more about the living annuity fees. 

How to choose between monthly and quarterly living annuity payments 

Let’s look at a few practical questions that you may like to consider when choosing between monthly and quarterly income payments. 

Consider monthly payments if:

1. Your annuity payments are your main source of income. 
2. Your expenses are generally monthly payments and include monthly debit orders. 
3. You are more comfortable budgeting with smaller, more regular amounts. 
4. You prefer stable, predictable income payments. 

Consider quarterly payments if:

1. You would rather receive larger payments, less often. 
2. You already have enough monthly income coming in from other sources. 
3. You are comfortable with budgeting over a longer time period, such as three months. 
4. Your expenses often occur quarterly or ad hoc. 

The right payment frequency will depend on how you manage your finances and when you need access to your retirement income. For example, if you choose quarterly payments but have monthly expenses, you could divide each payment into three portions and set aside the money needed for each month. It’s also important to remember that changing your payment frequency won’t change your total annual drawdown amount.   

Whether you receive monthly or quarterly payments, you should choose an option that makes it easier to cover your expenses and manage your retirement income throughout the year.  

How 10X can help you manage your living annuity income  

10X offers you a living annuity that is transparent and flexible, and focuses on the long-term sustainability of your capital. Our investment strategy is passive with a more active approach to asset allocation. You are able to amend your drawdown rate each year on the policy anniversary date. It’s important to select a sustainable drawdown rate and a payment frequency that work for you.  

You may like to try out the 10X Living Annuity Calculator, one of our free online tools, which will allow you to try out different drawdown rates and retirement scenarios. There is also flexibility in amending your fund selection to ensure it aligns with your investor profile and long-term financial goals. Fees are low and transparent, potentially allowing more of your returns to be reinvested to grow your capital over the long term. 

Our 10X Investment Consultants are available to discuss your options with you, at no additional cost, so don’t hesitate to get in touch with them. 

Final thoughts on monthly vs quarterly living annuity payments 

Both monthly and quarterly payments are worth considering, but they may suit different income needs. Monthly payments may be best for retirees with monthly expenses and debit orders. Quarterly payments may suit you better if you already receive regular monthly income from other sources or are comfortable budgeting larger sums.  

Remember that your drawdown rate is separate from your payment frequency: changing how often you receive payments will not affect your annual drawdown rate. When reviewing your living annuity, consider your payment frequency alongside your drawdown rate, asset allocation, fees, investment performance and income requirements.  

If you’re exploring living annuity options, consider the 10X Living Annuity, which offers a low-cost, flexible and transparent option. Get in touch to learn more.