Living annuity strategy: How long should you plan for a living annuity to last?

A living annuity should be seen as a long-term retirement income product, as your retirement years may last a lot longer than expected. As a retiree, your living annuity may need to provide you with an income for 25, 30 or even more years. This highlights the importance of sustainability when it comes to your living annuity. As an investor, you are responsible for managing your living annuity, and this means planning for how long you’ll need it to last.

In this article, we will take a closer look at the factors influencing the longevity of your living annuity, such as inflation, fees, drawdown rate, investment returns and asset allocation, as well as how to manage these factors in order to make sure that your living annuity lasts for your full retirement years.

Understanding living annuities

A living annuity is a flexible post-retirement income product that has been funded by your retirement savings. You will keep your money invested in the market while also drawing an income from your annuity. This type of annuity allows you both flexibility and control when it comes to the income that you draw and the underlying assets that your money is invested in.

The income that you draw is determined by your drawdown rate, which is a percentage of the total value of your policy that you draw as income. This rate may be between 2.5% and 17.5% per annum. It can be amended each year at the policy anniversary date. You are also able to select the frequency of these payments from annual, bi-annual, quarterly or monthly - according to your preferences.

One of the major appeals of living annuities is the ability to pass on the residual value of your annuity to nominated beneficiaries outside of your estate, so tax-free.

Why longevity matters in retirement planning

Life expectancy vs planning horizon

Often, retirees may fail to plan effectively when it comes to how long they may live, which can lead to planning for a shorter time horizon than necessary. Your life expectancy is tied to how long you need your annuity to last.

If you decide to retire at age 60, it is very possible that you may live into your 80s or 90s, or even longer. This means you would need a regular income to last for 30+ years. Planning for a longer retirement horizon helps ensure that your savings are structured to support you throughout your later years.

The risk of outliving your savings

This is known as longevity risk, the risk that your savings run out before the end of your life. In the context of a living annuity, this is an important consideration, as your income depends on how your capital is managed over time.

If withdrawals are too high or investment returns are insufficient, your capital may be depleted too early. As such, we can see the importance of maintaining a sustainable drawdown rate, appropriate asset allocation and a long-term investment strategy.

The key factors that determine how long a living annuity lasts

There are a few key factors that may determine how long your living annuity may last. Let’s have a look at some of these considerations in more detail, as it may help you plan more effectively:

1. Drawdown rate

A higher drawdown rate may mean risking your capital running out too soon. A lower drawdown rate will keep more of your money invested to potentially grow and compound. A drawdown rate of 4% is thought to be sustainable by financial experts, but nothing can be guaranteed.

If you can draw out less money, then this would be preferable, as it would naturally allow your savings to last longer while potentially benefiting from compound growth. Your drawdown rate should be regularly reviewed; this is especially important during a market downturn, when you may need to reduce your selected rate.

2. Investment returns

Investment returns play a crucial role in the longevity of your living annuity. Strong and consistent returns mean there are more returns to reinvest and to potentially grow and compound over time. This can help support your income withdrawals while preserving the long-term value of your investment.

Periods of weaker performance, particularly in the early years of retirement, can have a major impact on the longevity of your living annuity. This is because you may still need to draw an income during these periods, which can reduce your capital at a time when growth is not at its strongest.

3. Inflation

Inflation has the effect of reducing the purchasing power of your money. This means that the basket of goods and services that you are able to buy with a certain value of money reduces. This may then lead to you increasing your drawdown rate in order to maintain the same standard of living, which naturally may impact the longevity of your annuity.

4. Fees

Fees are often overlooked when it comes to retirement and post-retirement products, but they play a major role. For example, high fees may reduce the available returns to reinvest in your living annuity, while on the other hand, lower fees may mean that you have more available returns to reinvest and potentially grow and compound over the long term. The lower your fees, the more you’re able to get out of your annuity over time.

The role of asset allocation in living annuity sustainability

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. Asset allocation is the mix of the different asset classes that your living annuity capital is invested in.

The assets that your money is invested in will be a mixture of equities, real estate, bonds and cash, as well as offshore investments. At 10X, we make life easy for you by offering a selection of carefully curated funds, each with a different mix of assets and geared towards different investor profiles.

Cash is the most stable of the asset classes, but it may also produce the lowest returns in the long term. Bonds may produce some higher returns than cash and will also add stability to your portfolio (while bonds are seen as a more conservative option, they may still outperform expectations). Additionally, real estate may provide a good hedge against inflation as well as provide potentially strong returns. Equities may provide the best returns of all the asset classes, while also being the most volatile. 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). However, past performance doesn’t guarantee future results.

Your asset allocation should be well-aligned with your long-term financial goals. You would also want to ensure that it matches your risk profile and investment timelines. Your risk profile looks at how comfortable you are with short term market volatility, and your investment timelines refer to how long you envisage having your annuity for.

Even during retirement years, you should consider including some equities in your portfolio to make sure it continues to grow steadily. You may also consider diversifying across the different asset classes in order to help balance both your risk and return.

Living annuities are not subject to Regulation 28 of The Pension Funds Act, meaning that there is no cap on where you can invest your capital. You may look to invest 100% offshore, as long as your service provider is able to offer this. Fortunately, 10X is able to offer a living annuity that may be invested 100% offshore.

We offer a wide range of funds that are well-diversified across the asset classes, therefore suiting investors with different profiles and long-term financial plans. Please explore our funds page for the most up-to-date fund information. Fund information is correct as of 27 March 2026.

Why inflation is a major risk for long retirements

Inflation has the impact of reducing the purchasing power of your money over time. You can experience this in everyday life, such as when you visit the grocery store and notice how the grocery prices have increased from one visit to the next. In other words, your money is not going as far as it has previously, and the basket of goods or services that you can purchase with a certain value of money is smaller.

For retirees, inflation is a particularly important risk because your annuity may need to provide you with an income for 20, 30 or even more years. This means that your income needs to keep up with rising costs in order to maintain your standard of living. If your withdrawals remain the same while prices increase, your real income will effectively decline over time. To preserve both income and capital, your investment returns need to at least keep pace with inflation. Ideally, they should exceed inflation to allow for real growth. As such, we can see the importance of maintaining an appropriate level of growth assets, like equities, within your portfolio, even during retirement.

How fees affect the longevity of a living annuity

The importance of fees should never be understated. If you are paying higher fees, this may result in there being fewer returns to reinvest and potentially grow over time. Lower fees may instead mean you have more returns to reinvest and grow over time. Ensuring that more returns are available to reinvest and compound over time may mean better longevity for your living annuity. There are some typical fees that you can expect to see deducted. These are the main fees:

• Administration fees: There will be activities like reporting, compliance and tax. These types of activities will fall under administration fees.
• Advisor fees: If you are making use of an advisor, they will provide advice and possibly other services. You may see both an initial and an ongoing fee charged.
• Management fees: These are the fees that are charged for the running of the fund.

Let’s look at an example which will help to illustrate the effect of high fees: We will assume the following for this example:

• Investment amount: R4 million
• Investment period of 25 years
• Drawdown rate: 4% (frequency of payment: annually)
• Return of 12% per annum
• An inflation rate of 6%

Example 1 (0.86% Fees): Real investment value is approximately R4.7 million.

Example 2 (3% Fees): Real investment value is approximately R2.9 million.

What may seem like a small difference in fees can have a substantial impact, especially when this is compounded over the long term. This example is for illustrative purposes only, and actual results may vary. Find out more about how fees impact retirement outcomes here.

The Effective Annual Cost (EAC) is a metric which was introduced by ASISA to allow investors to see what they are paying in fees and costs over a one year period. You can then use this information to compare and evaluate different service providers. All factors being equal, you can imagine that a higher EAC would allow less of your potential returns to be invested. A lower EAC will allow for more of your potential returns to be reinvested and grow over time. It’s important to remember that the EAC is just one factor to consider when evaluating investment options.

The value of index-based investing in retirement

Index-based investing, or index tracking, is when a benchmark index, such as the S&P 500, is mirrored. The aim is to generate the same returns as this benchmark fund. This strategy may be more cost-effective compared to an active management strategy due to fewer activities being involved. This may then result in lower costs or fees being passed on to you, as the investor. The focus with an index-tracking investment strategy is on consistent returns for the investor, coupled with stability and long-term growth.

Active management is a strategy where a fund manager will look to choose the winning stocks and time the market, in order to try to obtain the best returns. With this strategy, you may see a lot more research and analysis involved, as well as trading costs. You could therefore expect higher management fees. These higher costs may then be passed on to you in the form of higher fees. This method may also not always work as intended.

The S&P Indices Versus Active (SPIVA) Scorecards track the performance of actively managed funds against their benchmarks globally. According to the latest SPIVA South Africa Scorecard (as of June 2025), 67.61% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending June 30, 2025.

The importance of reviewing your living annuity strategy

It’s important to review your annuity on a regular basis, especially after major life events or changes in your personal and financial circumstances. Regular reviews can help ensure that your strategy remains aligned with your income needs and long-term retirement goals.

1. Drawdown rate: You are able to adjust your drawdown rate once per year at the policy anniversary date. You’ll want to make sure that your drawdown rate is still sustainable and aligns with your existing income needs.
2. Beneficiaries: You should review your nominated beneficiaries and ensure that this is up to date, to reflect your wishes.
3. Asset allocation: Your asset allocation should align with any changes to your investor profile and long-term financial goals. You would also want to check that you include some equities in order to aim for some growth in your portfolio.

Practical questions to ask

Let’s have a look at a few practical questions that are useful to consider when you are planning your annuity’s longevity:

1. Is my drawdown rate sustainable?
2. Do I have a strategic asset allocation that is well-aligned with my investor profile and long-term financial goals?
3. Is my asset allocation well-diversified, and does it include some equities?
4. Are my fees and EAC cost-effective, transparent and easy to understand? Am I making use of the EAC calculator to compare and evaluate service providers?
5. Am I reviewing my annuity each year to ensure that it matches my long-term financial plan and goals?

Final thoughts on living annuity planning

When you are structuring your living annuity, you would want to ensure that longevity is a key consideration and focus. Factors which may influence your living annuity’s longevity include: your drawdown rate, fees, asset allocation and investment returns. You would also want to consider inflation risk and market volatility. Careful, strategic planning coupled with regular reviews can help to ensure the sustainability of your living annuity. If you have any questions regarding your living annuity’s longevity, don’t hesitate to get in touch with the efficient and knowledgeable investment consultants at 10X who are just a call away!