Retirees in South Africa should be cautious about withdrawing too much money from their living annuity during retirement!
According to Brett Mackay, a consultant at 10X Investment, retirees in South Africa should be cautious about withdrawing too much money from their living annuity during retirement. Instead of taking out all their retirement savings at once, living annuities provide a safeguard by allowing them to secure a monthly income, preserving their savings while still allowing for long-term growth.
While some retirees may be tempted to cash out their entire retirement savings at once, Mackay warns that this can lead to a false sense of security, especially when retirees see a large sum of money in their accounts. With life expectancy increase, your money should also last longer. Cashing out your entire retirement investments at 65 can be a dangerous way to lose your hand and spend more than you should, which can end up damaging your future financially.
Mackay suggests treating the living annuity like a monthly salary, withdrawing only what’s needed for expenses while leaving the rest to continue growing. “This is a living annuity into which your retirement savings are paid. It also means that the bulk of your money gains at a tax-free rate, although what you cash out monthly will be taxed as if it were a monthly income”, he said.
Data from The Association for Savings and Investment South Africa (ASISA) shows that by the end of 2022, South African retirees had around R625.9 billion of their retirement savings invested in living annuities, showing a significant increase of 47.3% since 2018.
Living annuities offers different withdrawal rates, ranging from 2.5% to 17.5% annually, allowing retirees to choose to receive payments upfront, quarterly, bi-annually, or monthly. However, it’s essential to plan carefully, so you can ensure your savings last and continue growing for as long as possible. Withdrawing the maximum of 17.5% each year can deplete the capital over time.
Mackay also highlights that living annuities don’t form part of the deceased estate as long as beneficiaries are nominated, allowing the investment to pass directly to heirs. Heirs can choose to receive the investment as a lump sum or continue to withdrawal monthly, while also considering the tax implications carefully.
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