Post Retirement

Before we explore the different annuity options, have a look at the example below.

The example illustrates the FEAD effect:

An individual with a fund value of R 5 million, can increase their income by up to 40% over time and their capital value by more than 100% (Same risk, same inflation, same assumptions)

In this example we used the same assumptions but implemented the FEAD principles!!

Your retirement funds purpose is to accumulate enough savings to provide you with a regular and reliable income after you retire. Actuarial professionals in the retirement industry agree that your final retirement benefit should provide you with, at least, a minimum pension income of 75% of your final annual fund salary; we say it should be between 80-85%. Your pension should allow for yearly increases so that your income is not affected by inflation (also known as the Consumer Price Index, CPI)

We have the resources and knowledge to help you track your retirement savings to make sure you retire with enough capital to keep the standard of living you are accustomed to when you retire.

As with any long term investment, compounding Interest play’s a major role, as well as the cost and fund availability of a product/investment.

Options at Retirement:

  1. Provident Fund:
    • 100% Cash withdrawal
    • Part withdrawal – Part Annuity Income
    • 100% Annuity Income
  2. Pension Fund:
    • 1/3rd Cash withdrawal – 2/3rd Annuity Income
    • 100% Annuity Income
  3. Retirement Annuity:
    • 1/3rd Cash withdrawal – 2/3rd Annuity Income
    • 100% Annuity Income

Annuity Income

At retirement you have a few different options in regards to your retirement income.

Fixed Income Annuity

  • Fixed Income Annuities are the cheapest annuities as the income would never increase,
  • By purchasing this income you will have no control over your capital spent, and will earn this income until the end of the agreement.
  • Fixed Income Annuities pays a guaranteed income,
  • Remember that fixed income annuities will not keep up with inflation and the purchasing power of your income will decrease, this translate to a decrease in your income in real terms.

With Profit Annuity

  • With Profit Annuity is an alternative to fixed income annuities choosing a set escalation when buying your annuity.
  • By purchasing this income you will have no control over your capital spent, and will earn this income until the end of the agreement.
  • You can purchase a With Profit Annuity as a Single or Joint Life Annuity.
  • Your pension might increase every year depending on the bonus declared
  • This bonus depends on the insurer’s investment performance, may be 0%.
  • Pensions can never decrease after a bonus declaration.

Inflation Linked Annuity

  • The Inflation-Linked Annuity is similar to a Fixed Income Annuity except there are periodic increases to the pension that are linked to inflation,
  • By purchasing this income you will have no control over your capital spent, and will earn this income until the end of the agreement.
  • This annuity is more expensive than a Fixed Income Annuity and you will find that the same capital amount will buy a lower pension
  • It is generally agreed that this is a better option than the Fixed Income Annuity because it keeps up with inflation

Single Life Annuity

  • Single Life Annuity gives the investor a pension until he/she dies.
  • By purchasing this income you will have no control over your capital spent, and will earn this income until the end of the agreement.
  • You can purchase a guarantee of up to 15 years for this annuity. If you die before this period, the pension payable until the end of your guaranteed period will be paid to your nominated beneficiaries. Remember though that any additional benefits like guarantees cost money.
  • The longer the guarantee term on your pension, the lower the Single Life Annuity payment will be.

Joint Life Annuity

  • Joint Life Annuities gives you a pension until you and your spouse passes away, and after purchasing this annuity you will not have any say over your capital.
  • You can purchase a guarantee of up to 15 years for this. If both you and your spouse have passed on before the guarantee period is up, the pension will be paid to your nominated beneficiaries.
  • You can let your pension grow annually to keep up with inflation.

Living Annuity

  • Objective of a Living Annuity is to pay an income for life and stay in control of your capital and income options.
  • Your Capital will be invested in an investment portfolio to earn investment returns.
  • Your income level and frequency can be adjusted once a year, your income level must be between 2.5% and 17.5% of your capital investment according to the Pension Funds Act.
  • When you pass away this is the only annuity where your latest investment value will be transferred to your beneficiaries, either as an annuity or a lump sum.

Important factors to consider are:

  1. Cost, (administrative, fund and advice fees)
  2. Investment Platform,
  3. Fund availability for portfolio segmentation,
  4. Flexibility of living annuity
  5. Inflation

We will advise & assist you on how to:

  1. Invest cost effectively, (Reduce administrative fees to 0%, no commission)
  2. Maximize income or capital growth, (increase income up to 40% over time)
  3. Select and change funds, as income draw-down and capital value changes,
  4. Use the most effective administrative platform,
  5. Calculate the longevity of your capital values vs income draw-down rate.
  6. Project your cash-flow over time.
  7. What type of annuity will suite you best.