Last Updated on 17/01/2025 by Carl-Peter Lehmann
What is a Living Annuity? A Guide to Retirement Income in South Africa
A living annuity is a retirement income solution that allows you to convert your accumulated pension savings into a flexible, investment-linked income stream. When you retire, you can use some or all of your retirement savings to purchase a living annuity, which enables you to tailor your investment strategy and withdrawal rate to suit your financial needs.
Unlike traditional guaranteed annuities, a living annuity gives you control over how your capital is invested and the amount you withdraw each year – within regulated limits. This flexibility makes it a popular choice for retirees looking to balance growth potential, income stability, and long-term capital preservation.
In this guide, we’ll break down the pros and cons of a living annuity, how it works, and key considerations to help you decide if it’s the right option for your retirement income strategy. This is your guide for a comprehensive understanding of living annuities in South Africa.

Table of Contents
Living Annuity Meaning: What is a Living Annuity and How Does It Work?
A living annuity is a retirement income investment that allows you to convert your accumulated savings from a pension, provident, preservation, or retirement annuity fund into a flexible income stream once you retire. In South Africa, you can purchase a living annuity from the age of 55, using some or all of your retirement savings.
The primary goal of a living annuity is to provide sustainable income throughout retirement, ideally allowing you to maintain your lifestyle while ensuring your savings last. Throughout your working years, you contribute to retirement funds, building up enough capital to support yourself post-retirement. Once you retire, this capital can be invested in a living annuity (or a life annuity) to provide the income you need.
However, it’s crucial to understand that a living annuity is not guaranteed income for life – it depends on investment performance, withdrawal rates, and market conditions. If your investment delivers lower-than-expected returns or if you withdraw too much too soon – exceeding the growth rate of your investments -your capital can be depleted, leaving you without sufficient income later in retirement.
This is why careful financial planning and a well-structured investment strategy are essential when choosing a living annuity. The balance between growth potential, risk management, and sustainable withdrawals is key to ensuring financial security in retirement.
Latest Trends and Key Statistics on Living Annuities in South Africa
When choosing a living annuity, understanding current trends and data is crucial for making informed financial decisions. The Association for Savings and Investment South Africa (ASISA) regularly publishes reports on living annuity drawdown rates, total assets, and income sustainability, providing valuable insights into how retirees are managing their retirement savings.
According to the latest ASISA data, here are some key statistics on living annuities in South Africa:
1. Average Withdrawal Rates: As of 2023, the average annual drawdown rate for South African retirees was 6.6%, the lowest in five years. This indicates that more retirees are adopting a cautious approach to preserving their capital.
2. Total Assets and Policies: At the end of 2023, there were 535,509 living annuity policies, with total assets amounting to R682.2 billion.
3. Sustainable Withdrawal Recommendations: Financial experts generally recommend a 4% to 5% drawdown rate in the early years of retirement to ensure savings last, while cautioning that rates above 8% can significantly increase the risk of capital depletion.
Breakdown of Income Bands:
- 34.7% of living annuity assets (R236.8 billion) fall within the 2.5% to 5% withdrawal range—considered the most sustainable.
- 24.1% (R164.1 billion) is in the 5% to 7.5% range, while a smaller portion is allocated to higher-risk drawdown levels.
These figures reinforce the importance of setting a realistic withdrawal rate, aligning investments with long-term sustainability, and actively monitoring financial plans to safeguard retirement income.
Living Annuity Income Levels: With Flexibility There Are Risks
One of the key advantages of a living annuity is the ability to select your own income withdrawal rate, allowing you to tailor your retirement income to your personal needs. The minimum withdrawal rate is 2.5% per annum, while the maximum is 17.5% per annum. You also have the flexibility to adjust this rate once a year. However, while this flexibility is appealing, it comes with significant risks—most notably, the potential depletion of your capital if your drawdown rate is too high relative to your investment returns.
What is a Safe Drawdown Rate?
A widely accepted “safe” starting withdrawal rate is around 4% per annum. If this income escalates with inflation each year, and assuming an investment portfolio achieves Inflation Plus 4-5% net of all fees, the capital could last for approximately 30 years.
For example, if you retire at 60 and start with a 4% drawdown, your capital may sustain you until about age 90, provided that your investment returns remain consistent. However, the performance of your underlying portfolio plays a critical role, and market volatility can significantly impact the sustainability of your income.
Sustainable Drawdown Rates: Insights from ASISA
Once your withdrawal rate exceeds 5% per annum, the risk of depleting your living annuity capital rises significantly. At a 5% annual drawdown, your savings may only last 20 years – unless your investment portfolio delivers consistently strong returns. This is why having realistic return expectations is crucial when structuring your retirement income.
Many retirees assume they can achieve double-digit returns to sustain higher withdrawals, but the reality is far more complex. While some offshore investments may have delivered 10%+ annual returns, very few South African investment options have achieved this over the past decade.
ASISA Standards: The Relationship Between Drawdown Rates and Investment Returns:
The Association for Savings and Investment South Africa (ASISA) has developed a framework showing how drawdown rates impact the longevity of a living annuity, based on historical investment performance.
According to recent data, achieving net returns of 7.5% per annum would be a reasonable benchmark for setting expectations. However, if returns were to increase to 10% per annum, capital longevity could improve significantly—though relying on such returns carries risk due to market volatility.
The table below illustrates how different withdrawal rates and investment returns affect the sustainability of a living annuity:

Key Takeaways for Retirees
✔ Keeping your drawdown rate low (4% or less) significantly increases capital longevity
✔ Higher withdrawals (5% and above) introduce a much greater risk of running out of capital
✔ Setting realistic return expectations—around 7.5% per annum—ensures more sustainable planning
✔ With 10% net returns, capital longevity improves significantly, but consider how much additional risk and volatility that adds to your portfolio.
Many retirees underestimate the impact of drawdown compounding—increasing withdrawals over time while experiencing market volatility can rapidly accelerate capital depletion. This is why regularly reviewing your annuity strategy and adjusting investment allocations and withdrawal rates in response to market conditions is critical to maintaining financial security in retirement.
Setting Realistic Return Expectations
When planning for retirement, it’s essential to have realistic expectations about investment returns and to understand what “after all fees” truly means. The average return on balanced funds in South Africa – where most retirement savings are invested – has been 7.57% per annum over the past 10 years (as at 08/01/2025). While this has improved somewhat in recent years, with a peer group average of 9.86% per annum over the last 5 years, these figures still don’t account for advice, administration/platform fees, which can easily reduce net returns by 1.00% to 1.50% per annum.
Some argue that once in a living annuity, investors are no longer constrained by Regulation 28, allowing for greater offshore exposure. However, in practice, many platforms are already at offshore capacity, limiting this flexibility. Moreover, unless you have a substantial investment that enables a low initial drawdown rate, the additional volatility and currency risk of offshore investments mean most prudent advisors would advocate a balanced, risk-aware approach rather than an aggressive offshore tilt.
Understanding your actual returns, or Internal Rate of Return (IRR), which accounts for all fees, is critical. Many investors in living annuities only realize the impact of fees and market fluctuations when reviewing their portfolio’s IRR. We’ve seen numerous cases where actual returns (IRR) have been in the 5-7% per annum range, which can present serious risks to the longevity of retirement capital—especially for those with higher drawdown rates.
Looking at the numbers, if you start with a 2.5% drawdown rate, longevity risk is minimal. A 4% per annum drawdown should sustain income for approximately 30 years under normal market conditions. However, once withdrawals exceed 5% per annum, the long-term sustainability of the portfolio becomes increasingly difficult, particularly without strong and consistent investment returns—something that should not be relied on as a given. Sustainable retirement income planning requires more than just chasing performance; it demands a strategic approach that balances risk, returns, and capital preservation over the long term
What is the Best Living Annuity in South Africa?
Many retirees search for the best living annuity in South Africa, hoping to find a solution that maximizes income sustainability while delivering strong investment returns. However, the reality is that there is no single “best” living annuity—the right choice depends on your personal financial circumstances, investment strategy, and long-term goals. Remember, a Living Annuity from providers like Allan Gray, Ninety One, Glacier, or Old Mutual is merely the structure or “wrapper”- what truly determines your outcomes is the underlying funds or investments you choose within it.
Unlike traditional life annuities, which provide guaranteed income for life, a living annuity requires careful planning and management to ensure your capital lasts. Factors such as withdrawal rates, market returns, longevity risk, and portfolio construction all play a role in determining whether your annuity will meet your income needs throughout retirement.
While selecting high-performing funds within your annuity can enhance returns, it does not guarantee long-term sustainability. Even a well-constructed portfolio faces challenges such as market volatility, sequence risk, and the impact of inflation on spending power. This is where the art and science of structuring a living annuity portfolio become critical.
In the next section, we explore the key challenges of building an optimal living annuity portfolio, highlighting the complexities involved in balancing investment growth, risk management, and sustainable withdrawals.

When looking at the best-performing balanced funds over seven years, there is a noticeable clustering of returns, with the top funds delivering between 10.68% and 12.04% per annum. This contrasts sharply with the broader dispersion of returns seen in the top-performing funds across different ASISA categories. If you assume that a typical retiree with a 30-year-plus investment time horizon will still need an Inflation Plus 5% return to sustain their income, then balanced funds alone may not be sufficient—especially once you account for advice and admin/platform fees. Even among the top five best-performing balanced funds out of approximately 160 funds, returns have only just exceeded the Inflation Plus 5% benchmark, highlighting the challenge of relying solely on this category of funds to meet long-term retirement income needs

The Challenge of Building the Optimal Living Annuity Portfolio
Selecting the best-performing investment fund is not enough to ensure the long-term success of a living annuity. While past performance can indicate skill in asset management, constructing an effective post-retirement investment strategy involves navigating complex risks that can significantly impact retirement outcomes. A living annuity is a vehicle that needs to sustain an investor’s income needs over potentially decades, meaning that the art and science of designing a sustainable drawdown strategy is just as important as selecting high-performing funds.
1. The Role of Market Returns and Volatility
Market returns play a fundamental role in the sustainability of a living annuity, but they are not predictable year to year. Even a portfolio made up of the best-performing funds in different ASISA categories will be exposed to market cycles, corrections, and potential bear markets. Investors who experience poor returns in the early years of retirement may find their portfolios depleted faster than expected, even if returns recover later—a phenomenon known as sequence risk.
2. Sequence Risk: The Hidden Threat
Sequence risk is one of the most dangerous challenges in post-retirement investing. If an investor starts withdrawing income from their living annuity during a market downturn, they are selling assets at lower prices, reducing their ability to recover when markets rebound. This risk underscores the need for a diversified and well-balanced portfolio that includes asset classes with different risk and return characteristics, rather than relying solely on past performance. See chart below as an example.
3. The Impact of Drawdown Rates
The withdrawal rate from a living annuity significantly influences its longevity. Many retirees in South Africa withdraw at rates of 5% or more per year, yet this might not be sustainable if market conditions are unfavorable. A safe drawdown strategy should be adaptable—allowing for reduced withdrawals in weak markets while capitalizing on stronger years to build portfolio resilience. Even a high-returning fund may not compensate for an excessive drawdown rate if market returns fail to align with withdrawal needs.
4. Longevity Risk: How Long Will Your Money Last?
With medical advancements and healthier lifestyles, South Africans are living longer, increasing the risk of outliving their retirement capital. The challenge in constructing an optimal living annuity portfolio is ensuring that it provides sufficient income without excessive depletion. This means incorporating long-term growth assets such as equities while balancing them with lower-risk assets like income funds to provide stability during market downturns.
5. High-Performing Funds vs. Sustainable Retirement Portfolios
The best-performing funds over a particular period may not necessarily be the best funds for retirement income sustainability. Some funds exhibit high volatility or may have generated returns due to exposure to specific market conditions that may not persist. The key is to combine funds that align with both risk tolerance and income needs while ensuring broad diversification across asset classes.
6. The Art and Science of Portfolio Construction
Building a living annuity portfolio is both an art and a science. The science lies in using historical data, expected return assumptions, and risk modeling to structure an optimal mix of assets. The art lies in understanding human behavior, the emotional impact of market downturns, and the unique income needs of each retiree. A well-constructed living annuity should allow for flexibility, enabling retirees to adjust their strategy based on market performance, personal circumstances, and economic conditions.

Living Annuity Fees: Understanding Effective Annual Costs

Living annuities (like all investment products) have different layers of charges, cumulatively known as the Effective Annual Cost (EAC). In South Africa, we lead the world in transparency regarding the disclosure of these charges and how they impact your investment returns. While fees are unavoidable and good advice is worth paying for, understanding these fees will help you make more informed decisions. The above image shows how these fees are typically presented on a quote or proposal.
1.Investment Management
2.Advice Charges
3.Administration or Platform Charges
4.Other (typically added when a discretionary fund manager is used to manage the underlying investments)
Investment Management Charges
These fees are charged by the investment company or asset manager that runs the underlying investment portfolio. This could be in the form of actively managed unit trusts, index funds or ETFs, or even direct share portfolios. Actively managed funds typically have management fees ranging from 1.00% to 1.50% per annum, whereas index funds generally have fees about half that. Any return published on a fund fact-sheet will be net of these fees.
Advice Charges
Advice charges might include an initial commission and/or an ongoing annual advice fee of up to 1% per annum plus VAT. For larger amounts invested, many financial advisors will typically waive the initial fee and negotiate an annual advice fee, usually in the 0.50% to 1.00% per annum range.
Administration or Platform Fees
The administration or platform fee is charged by the custodian (LISP) that houses the living annuity product and provides access to funds and investments from a variety of different asset managers. Fees tend to start at about 0.50% per annum for smaller amounts invested and work on a sliding scale—the more you invest, the lower the admin fee.
The Impact of These Fees on Your Net Investment Return
The return published on a fund fact-sheet is net only of the investment management charges. So, if your underlying investments have delivered, for example, a return of 8% per annum according to a fund fact-sheet or proposal provided to you, the other charges listed (advice, admin, and other) are deducted from your actual investment to determine your net investment return after all fees and charges. In this case, if those add up to 1.05% (as per the above EAC image) – your actual (net) return would be closer to 7% per year.
The Impact of Advice Fees on the Sustainability of Your Living Annuity
Fees play a critical role in the long-term sustainability of your living annuity, and high costs can significantly erode capital over time. We’ve seen Effective Annual Costs (EACs) exceeding 3%, which is simply unsustainable for most retirees. One of the key concerns is how advice fees are structured, particularly when charged as a percentage of assets under management (AUM).
Consider this: If you’re paying a 1% advice fee on R10 million invested in a living annuity, that equates to R100,000 per year—an amount that fluctuates with market performance. Now, compare that to an investor with R5 million, paying R50,000 annually on the same fee scale. Are they receiving half the level of service or value compared to the investor with R10 million? In most cases, the advice process, complexity, and scope of work are very similar—yet the fees are vastly different.
This illustrates one of the key flaws in the percentage-based AUM model: It doesn’t always result in fair or equitable fee structures. Advice fees should be aligned with the complexity of the financial planning, the expertise required, and the actual time spent delivering value—not simply tied to the size of an investor’s portfolio.
A more transparent, structured approach to fees, such as a flat-fee model, ensures that retirees receive fair value for advice without overpaying simply because they have accumulated more capital. This structure promotes better alignment between cost and service, ultimately improving the long-term sustainability of retirement savings.
10X Living Annuity and Sygnia Living Annuity - The Rise of Low-Cost Investment Platforms: Opportunities and Risks
The rise of low-cost investment platforms and passive solutions like index funds and ETFs has made investing more accessible to individuals. Companies like 10X and Sygnia market their low-cost retirement solutions directly to consumers, allowing them to invest without the need for a traditional financial advisor. While this is beneficial in terms of reducing costs, it also introduces risks that many investors may not fully consider – particularly in a post-retirement investment strategy.
One of the key risks of going direct is that many retirees end up investing all their capital into a single balanced fund, even if it’s low-cost. While balanced funds provide broad diversification, they are still exposed to market volatility, sequence risk, and long-term return uncertainty. As we’ve discussed, balanced funds alone may not provide the necessary long-term returns to sustain a living annuity, particularly after accounting for withdrawals and fees. Additionally, past performance has shown that even top-performing balanced funds can go through extended periods of underperformance, creating potential risks for retirees who need stable income.
Firms like 10X and Sygnia do offer in-house consultants, but their role is often more aligned with selling a specific investment product rather than providing holistic financial planning that considers factors like withdrawal rates, tax efficiency, longevity risk, and estate planning. Investing at retirement is fundamentally different from wealth accumulation—withdrawals amplify the impact of market downturns, making volatility management just as crucial as capturing returns.
While low-cost investing, index funds, and ETFs have clear advantages, particularly in reducing fees, it’s also important to recognize that much of the historical data supporting passive investing comes from a period of relatively low volatility following the 2008 financial crisis. A well-structured living annuity portfolio should not be built solely around cost considerations, but rather a balance of cost, risk management, diversification, and sustainable returns to ensure financial security throughout retirement.
What Happens to my Living Annuity on Death?
One of the biggest benefits of a living annuity is that upon death, any remaining capital can be left to nominated beneficiaries. This is a critical point – make sure you have nominated beneficiaries to avoid your living annuity having to be wound up as part of your estate, thereby incurring executor fees. Living annuities are always exempt from estate duty.
Assuming you have not purchased an in-fund living annuity, Section 37C does not apply, meaning trustee discretion does not potentially override your choice of beneficiary. Therefore, benefits can be paid to your nominated beneficiaries immediately.
Your beneficiaries can then choose to take what is remaining through:
1. A cash lump sum
2. Continuing to receive an income by using their allocation to purchase their own living annuity
3. A combination of the two
Tax on Death
Any amount taken as a cash lump sum will mean your beneficiaries pay tax according to the retirement tax withdrawal table. The first R550,000 is tax-free (assuming none of that has already been used), after which tax is payable on a sliding scale of 18-36%, depending on the size of the lump sum.
If they continue to receive an income via their own living annuity, no lump sum tax is payable, and they will pay income tax on their gross income for the year, which includes income from their living annuity and all other sources.
While it is attractive to be able to leave money to nominated beneficiaries, remember that your retirement capital is designed to provide you with an income throughout your lifetime. Therefore, consider whether a guaranteed life annuity, which pays an income for life, might be a better alternative. While you may not be able to leave money to heirs, at least you don’t run the risk of running out.
Further Reading: Decoding the Value of Retirement Annuities As a Retirement Planning Tool
Conclusion: Balancing Cost, Risk, and Sustainability in Retirement
Choosing the right living annuity strategy is about more than just minimizing costs or chasing the highest returns—it requires a thoughtful balance between investment growth, risk management, and sustainable income planning. While low-cost solutions and passive investing have their place, they don’t eliminate sequence risk, longevity concerns, or the need for diversification beyond a single balanced fund.
A well-structured living annuity isn’t about finding the “best” fund—it’s about building a resilient portfolio that aligns with your retirement goals, withdrawal needs, and long-term financial security. Partnering with an advisor who takes a holistic, independent approach can make all the difference in navigating the complexities of post-retirement investing.
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Carl-Peter Lehmann
Carl-Peter is a Certified Financial Planner (CFP®) and director at Henceforward with over 20 years experience, specializing in independent wealth management and retirement planning. With years of experience advising high-net-worth clients, Carl-Peter focuses on evidence-based investment strategies, sustainable income planning, and financial decision-making that puts clients' best interests first. When not guiding clients through retirement complexities, he enjoys trail running and life's simple pleasures in the village of McGregor.