Living annuities allow retirees to draw down between 2.5 percent and 17.5 percent of their capital a year as income. Unfortunately, many retirees are drawing down too much in their early retirement years, thereby risking having little or nothing left of their capital when they’re older.
There is a way to consume more in your active retirement years, knowing that later on you can fall back on a lower income that at least covers your essential expenses for life.
When it comes to drawdown rates, the industry rule of thumb to maintain a steady level of income throughout retirement, taking increased longevity and inflation into account, is 4 percent a year. However, according to the Association for Savings and Investment SA, the average draw down rate of retirees in living annuities is about 6.6 percent. This implies that more than half of living annuitants are drawing more than 6.6 percent a year, thereby jeopardising their future pension.
Research conducted by Just last year showed that 89 percent of respondents want a guaranteed income for life - something that living annuities can’t provide on their own.