You can also listen to this podcast on iono.fm here. ADVERTISEMENT CONTINUE READING BELOW BOITUMELO NTSOKO: As retirement approaches, many investors are faced with myriad decisions that can be daunting to navigate. From determining the right income stream to ensuring tax efficiency and long-term sustainability, the choices can feel overwhelming.
DEVON CARD: Of course. With a living annuity, you have the option of drawing anywhere between 2.5% and 17.5% of your fund’s value on an annual basis when you have your options of your drawdown level, and investors can choose whether they want to receive this payout as an annual upfront amount. They can choose quarterly, bi-annually, or monthly.
DEVON CARD: Sure. I would say there are probably two types of risk that investors need to be concerned about when it comes to living annuities. To answer the first question around the sustainability, that’s always to do with your drawdown rate – how much you are drawing out and what return you’re actually getting from the underlying investment.
So the nice thing about living annuities is you’re not restricted by Regulation 28, as investors are when they’re saving in a retirement annuity, for example. You can invest in any range of assets starting from a basic income fund or money market fund, all the way up to a 100% equity fund – for example, invested 100% offshore.So it’s important for investors to understand, one, what return they actually need from their overall portfolio to have a sustainable drawdown in retirement.
DEVON CARD: That’s another great question. If I look at the tax inside living annuities, one of the big benefits of living annuities is that they’re actually tax-free in terms of any growth that you earn inside the investment itself and any interest that you earn inside the investment. So you don’t have to worry about paying capital gains tax, or worrying about any additional tax for the interest that you earn inside the living annuity.
DEVON CARD: Living annuities are actually a great estate-planning tool as well, because living annuities sit outside the investor’s estate, provided you have beneficiaries nominated. So again, it’s crucially important, if you have a living annuity, to please make sure that you’ve nominated a beneficiary.