How to have it all in retirement: Income flexibility, investment capital growth and a legacy for your children

The uncomfortable truth about retirement in South Africa - Rands and Sense by 10X [video]

We sit down with 10X Investment Consultant lead Andre Tuck and discuss the retirement savings crisis in South Africa. We also delve into living annuities, retirement annuities, TFSAs and everything in between. Read more

Your retirement freedom arrives with the right living annuity

After decades of disciplined saving, you need to choose a pension product. And this decision marks the transition from the restricted world of pre-retirement investing to the investment freedom available through living annuities.

Throughout your working years, Regulation 28 guided your investment choices with specific limits, such as a 45% offshore exposure maximum and a 75% equity cap. While these provided protection from poor decisions, they also limited your access to global opportunities and a variety of portfolio strategies.

When you move your retirement savings into a living annuity, these restrictions disappear. Suddenly, you can allocate 100% offshore if appropriate, maintain pure equity exposure, or construct sophisticated strategies that weren't possible under Regulation 28. This freedom opens powerful opportunities for currency protection, enhanced returns, and estate planning. But, it also requires strategic thinking about what's optimal for your circumstances, and you take on ultimate responsibility for your investment.

What's possible with a Living Annuity?

Living annuities exempt you from Regulation 28, providing access to investment strategies that simply weren't available while you were saving for your retirement:

• Global diversification without limits: You have unrestricted access to international markets, sectors, and companies not available on the JSE. Technology giants, global healthcare innovators, and international consumer brands become more accessible.
• Currency strategy options: Hedging against rand volatility through offshore exposure is possible, which can be particularly valuable for retirees with international lifestyles or concerns about local currency depreciation.
• Pure growth strategies: You're able to maintain high equity exposure throughout retirement for inflation protection and wealth preservation, rather than being forced into conservative allocations.
• Estate planning optimisation: Living annuities are not part of your estate, avoiding estate duty (20-25%) and executor's fees (up to 3.5%), while allowing multi-generational wealth transfer.
• Flexible income management: You can adjust your annual drawdown between 2.5% and 17.5%, allowing you to adapt to changing needs and market conditions.

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

Asset-Liability matching and getting your asset allocation right

The key question isn't how much offshore exposure you can have. It's how much you should have based on your specific circumstances. This depends heavily on your expense patterns and lifestyle needs.

Consider your spending profile:

• Rand expenses: Medical aid, utilities, local services, domestic activities (typically 70-80% for most retirees)
• Dollar-linked expenses: International travel, imported goods, offshore property, children abroad

If 80% of your expenses are in rands, having 80% offshore exposure creates currency risk, in that if the Rand strengthens, it could reduce your income when converted back for local expenses. Conversely, substantial international exposure makes sense if you have significant dollar-linked costs.

Consider these potential strategic asset allocation ranges:

• 40-60% offshore: Meaningful diversification while maintaining rand income stability
• 60-80% offshore: For international lifestyles or strong currency protection needs
• 80-100% offshore: Typically only suitable for those with substantial foreign expenses

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Fund options for Living Annuity flexibility

At 10X, our living annuity options provide different levels of offshore exposure to match your specific needs:

10X Your Future Fund (Regulation 28 compliant):

• Strategic offshore allocation (currently around 45%)
• 17-year track record targeting inflation + 5.5% (real returns)
• Ideal for most retirees seeking balanced global exposure

10X International Medium Equity Fund:

• Approximately 65% offshore exposure
• Blends our Moderate Fund with additional international equity
• Suitable for those wanting higher offshore allocation

10X International High Equity Fund:

• Approximately 75% offshore exposure
• Higher growth focus with substantial international exposure
• For retirees comfortable with a higher offshore allocation

10X MSCI World Index Feeder Fund:

• 100% offshore exposure to developed markets
• Pure international equity exposure
• For specific offshore allocation needs or international lifestyles

This flexibility allows you to construct a living annuity portfolio that precisely matches your currency needs and risk preferences.

The Golden Equation for sustainable retirement income

The fundamental equation for preserving your retirement capital remains:

Drawdowns + Fees + Inflation ≤ Investment Returns

For a R5 million portfolio, sustainable annual income typically ranges from 4-5% (R200,000-R250,000), depending on your investment allocation and fee levels. Higher offshore exposure can provide growth potential but introduces currency volatility that affects Rand income predictability.

The Rule of 4%: Will Your Retirement Savings Last?

Explore the 4% rule for retirement withdrawals and understand how fees impact your retirement income. Learn about sustainable drawdown rates, the effects of inflation, and how to make your retirement savings last longer with 10X's low-fee approach. Read more

Managing sequence risk: Early retirement years are crucial—poor returns combined with income withdrawals can permanently impair your capital. Having 1-2 years of income in cash or conservative investments provides protection during market downturns.

Estate Planning: The Living Annuity Advantage

Living annuities offer exceptional estate planning benefits. Upon death, remaining capital passes directly to nominated beneficiaries, avoiding:

• Estate duty: 20% on first R30 million, 25% thereafter
• Executor's fees: Up to 3.5% of asset value
• Estate administration delays: Direct transfer to beneficiaries

On a R3 million remaining balance (the first R2 million is tax-free), this saves over R600,000 in duties and fees. Beneficiaries can either withdraw the capital (subject to retirement tax tables) or continue the living annuity, allowing multi-generational wealth preservation.

Fee Management in your living annuity

Investment freedom shouldn't mean higher costs. At 10X, our approach minimizes fees while maximizing your investment options:

• Single management fee structure: No advice fees, performance fees, or switching penalties
• Decreasing fees with scale: Lower costs as your investment grows
• Transparent reporting: Clear disclosure of all costs in your Effective Annual Cost
• Efficient offshore access: Institutional rates for currency conversion and international exposure

Low fees become even more important in retirement because they directly impact your sustainable income levels and capital preservation.

The 4% retirement rule isn't dead (but your investment fees might kill it)

4% has historically been a good rule of thumb when it comes to income drawn down from retirement investments such as a living annuity. But is it still relevant, and when might it be too much? Read more

Your Living Annuity strategy

Moving to a living annuity represents a significant transition requiring careful planning:

1. Assess your expense profile: Understand your rand vs. offshore spending needs
2. Model different scenarios: Use our to test various allocations and drawdown rates
3. Consider your estate goals: Factor in wealth transfer objectives and beneficiary needs

The goal is constructing a living annuity that provides sustainable income, protects against inflation, and preserves wealth, while taking advantage of your newfound investment freedom.

Ready to explore your living annuity options? Speak with one of our investment consultants to understand how different fund combinations could work for your retirement goals. They can help model various scenarios and explain how our range of funds provides flexible access to both local and global markets.