Navigating retirement with 10X: Growth-oriented investment strategies for living annuities

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A living annuity is a retirement savings investment product that you can use post-retirement, giving you the freedom to draw a regular income throughout your retirement years while keeping the rest of your savings invested. It is funded by the retirement savings you have accumulated over the years while working. Upon retirement, which is currently at age 55 in South Africa, these savings, originating from a retirement annuity, preservation fund, or provident fund, are transferred to a living annuity. The living annuity then provides you with an income during your retirement years.  

At 10X, we have a range of different fund choices with different investment strategies to help you navigate retirement. Our fund choices are tailored towards different retirement goals. In this article, we discuss each of these fund choices and the strategies that you can use to manage your living annuity effectively and sustainably, while keeping long-term risks like inflation and fees in check.  

The role of investment strategy and asset allocation in living annuities   

Your investment strategy significantly influences whether your retirement savings last, so selecting a fund with the appropriate mix of equities, bonds, property, and cash is essential. Your decision should be guided by your personal risk tolerance and time horizon.  

Asset allocation is a huge part of any investment strategy. The assets that you would typically see would be a mix of equities, bonds, real estate, and cash. Equities can potentially yield the best returns, bonds can provide more stability to your portfolio but yield lower returns, real estate is a good hedge against inflation and can also yield some good returns, and cash is the most stable of the asset classes but usually yields the lowest returns of all.  

Including equities in your underlying portfolios offers the best chance of beating inflation in the long term. History has demonstrated that, over time, equities can outpace inflation. Although equities are the most volatile asset class, they have the potential to deliver the highest returns over the long term. It’s important to focus on the actual returns of your investment once these have been adjusted for factors such as fees and inflation, as this will give you a true indication of the returns you are earning on your investment.  

As always, you want to take a long-term view when investing. It is vital to ensure that you don’t make any emotional decisions, such as ‘panic selling’ in response to a market crash. Consider sitting out the downturn and waiting for the market to recover over time, thereby not locking in any of the potential losses. At 10X, the approach to asset allocation is strategically focused on long-term returns and driving the right outcome for you, as you move towards retirement. Asset allocation has been shown to be a key indicator of the potential success of a particular fund.  

10X Growth-orientated investment funds 

At 10X, you have the freedom to adjust your underlying investment portfolio by choosing from a selection of carefully curated investment funds, enabling you to diversify across asset classes such as equities, property, bonds and even offshore investments. For investors with a higher risk tolerance, you may want to choose a fund with a higher allocation towards equities, while more conservative investors may prefer a fund with a higher allocation to bonds. Let’s look at a few of the different funds on offer from 10X below. You can view all funds here.  

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10X Your Future Fund  

The 10X Your Future Fund is one of our flagship funds. The fund is best suited to investors seeking long-term capital growth achieved through cost-effective exposure to a range of local and international asset classes. The ideal investor time horizon is five years or longer, as returns in the short term may be more volatile.

The fund has a higher allocation to growth assets such as equities and property. As such, investors who want long-term capital appreciation to build wealth should consider the 10X Your Future Fund.  

The fund is appealing for its consistent outperformance against benchmarks and comparable funds, its exposure across several asset classes and geographies, and 10X’s commitment to maximising net returns. The fund exposure is set at 63.4% local and 36.6% offshore. You can find out more about the fund here.  

10X Income Fund  

The 10X Income Fund is another of our flagship offerings, best suited to investors seeking a high level of income and long-term capital stability achieved through cost-effective exposure to different local and international interest-bearing assets. The fund is carefully curated to provide investors with a high level of income and capital stability in the long term.  

The fund achieves this through cost-effective exposure to a diverse range of local and international interest-bearing assets, with a recommended timeline of three years or longer. Returns may fluctuate in the short term, but the fund is expertly designed to deliver a high level of income, with an existing 12-month forward yield of 9.8%.  

The Income Fund aims to provide long-term capital stability with diversified exposure to different assets and geographies. Fund exposure is set at 84.6% local and 15.4% offshore. You can find out more about the income fund here.  

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10X MSCI World Index Feeder Fund 

The MSCI World Index Feeder Fund is totally focused on offshore exposure. The fund gives investors comprehensive offshore exposure through tracking the MSCI World Index, which captures the performance of large and mid-cap equity securities across 23 developed market countries.  

By investing in the dollar-based iShares Developed World Index Fund (UCITS) domiciled in Ireland, this fund is aimed at closely matching the index’s performance in ZAR, maximising long-term capital growth via a diversified global equity portfolio. With this fund, you gain 100% offshore exposure, and your portfolio is diversified across 23 different countries and several different sectors.  

For investors interested in a cost-effective, passively managed fund that closely tracks the performance of the MSCI World Index, this is a strong choice. As mentioned above, exposure is set at 100% offshore. You can find out more about the fund here.  

10X International High Equity  

The 10X International High Equity Fund aims to generate long-term capital growth via a diversified combination of local and offshore asset classes. 80% of the fund’s assets are allocated to local and international shares and property, with significant exposure to global markets. 20% is allocated to defensive assets such as bonds and cash to help manage risk.  

The strategic offshore exposure is set at above 70% and is designed for investors looking to capitalise on international investment opportunities. Investors can benefit from this diversified fund, combining global and long-term investments. Fund exposure is set at 73% offshore and 27% local. You can learn more about the fund here.   

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10X Moderate Fund 

The 10X Moderate Fund is best for investors who want capital growth with lower volatility than a high equity portfolio over the medium to long term. The fund achieves this through cost-effective exposure to a range of local and international asset classes, and has a higher allocation to growth assets (shares and property) than to defensive assets (bonds and cash).  

The recommended time horizon for this fund is three years or longer, as returns will likely be more volatile in the short term. The moderate fund has a lower risk than that of a pure equity fund, with the risk higher in periods shorter than a year and lower in periods longer than three years. The fund exposure is set at 67.7% local and 32.3% offshore. You can find out more about the fund here.  

What is inflation risk, and why does it matter for living annuities? 

Inflation is inevitable and beyond our control. It reduces the purchasing power of money over time, meaning that each year, a certain amount of money buys fewer goods and services, diminishing the real value of your money in the long run. According to Stats SA, consumer prices have risen at an average of around 5 to 6% annually over the past decade.  

If we imagine the same pattern of inflation occurring with many of the goods and services that we purchase, this can have a profound effect on how far our money will go. The effect of this is felt even more for the retiree, who is not earning a salary any longer, compared to a salaried employee. 10X looks to beat inflation and protect the value of your living annuity by using a specific set of underlying funds that have been formulated to produce excellent returns over the long term.   

The importance of low fees 

Unlike inflation, we have control over the fees we pay on our investments. Similar to inflation, however, high fees also have the effect of potentially reducing our capital over the long term, as they reduce the returns that we have available to reinvest. This then reduces the capital amount that we have available to potentially grow and compound over the long term.  

Let’s look at an example to illustrate the effect of high fees on our living annuity over a period of 30 years. Here we will compare the fees of 3% against the fees of 1%.   

Let’s assume the following:  

• Investment period of 30 years 
• Investment of R100,000 
• Return of 12% per annum  
• An inflation rate of 6%  

 Example 1 (1% Fees): Real investment value is R398,500.   

Example 2 (3% Fees): Real investment value is R231,000.    

As this example shows you, the higher fees have the effect of eroding your net investment returns over time. With just a difference of 2% in fees, the difference was equal to R167,500 over the 30-year period. High fees can potentially deplete your capital, especially when compounded over the long term. Note that this example is for illustrative purposes only and actual results may vary. You can learn more about how fees impact growth here.   

10X focuses on transparent and low fees. We understand the importance of keeping fees low in order to potentially compound returns over the long term to benefit you, the investor. 

Effective Annual Cost (EAC)   

The Effective Annual Cost (EAC) is a mechanism by which consumers can compare the total fees and investment costs charged by one service provider with the fees and costs charged by another service provider. You may see fees such as management, advice and administration fees charged, as well as other costs such as exit penalties and performance bonuses. As an investor, you should always be aware of these costs so that you can make informed decisions as to your choice of service provider. You can request a copy of your EAC from your service provider to get more clarity on your total fees per year.   

This calculator allows you to see the fees charged by 10X, and thereafter, you may compare these with the fees and costs charged by your current service provider. 10X keeps fees low, with fees set at 1% or less for most retirement products. This allows more of your returns to be invested and potentially grow for you over time, helping you to preserve the value of your living annuity and the income drawn from it. 

Adjusting drawdown rates to preserve long-term purchasing power  

As a retiree, the sustainability of your living annuity is incredibly important, and finding a sustainable drawdown rate is a key part of a growth-oriented investment strategy. Naturally, you want your living annuity to last throughout your retirement years.   

To ensure that this is the case, you need to select a sustainable drawdown rate. A drawdown rate of 4% is often considered by financial experts to be potentially sustainable, although individual circumstances can vary greatly. If you select a withdrawal rate of more than 5%, this can potentially place a strain on your capital over the long term, depending on investment performance and longevity. By choosing a sustainable drawdown rate, you allow for more of the market returns to be reinvested, and this can potentially compound and grow over time, leading to higher returns.  

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A high drawdown rate can result in your capital being depleted much quicker than you anticipated. This is because you are drawing more out of the living annuity, and there are fewer returns to be reinvested and allowed to potentially grow. You can also select the frequency of your living annuity payments to suit your lifestyle and needs. These income payments can be paid out annually, biannually, quarterly or monthly, depending on your needs. 

Conclusion and practical takeaways for living annuities  

Managing a living annuity effectively involves making smart, informed and deliberate decisions across various areas, from selecting the right investment strategy and fund mix to minimising fees and establishing a sustainable drawdown rate.  

With 10X, you gain access to a range of low-cost, growth-focused investment funds designed to help you preserve and expand your retirement savings over the long term, even amidst challenges like inflation and market volatility. When you focus on long-term returns, avoid emotional reactions, and balance your income needs with your portfolio’s growth potential, you are setting yourself up for a secure financial future.  

To find out more about 10X’s living annuity offerings, follow this link or speak to the helpful and knowledgeable investment consultants at 10X, free of charge. Get in touch today to get the most out of your future!