Adapting Your Retirement Annuity During Different Life Stages

A retirement annuity (RA) is a tax-efficient investment vehicle that enables you to invest a portion of your salary into a retirement fund regulated by Regulation 28 of the Pension Act. Your chosen RA provider uses these contributions to build a diversified portfolio, typically consisting of equities (stocks), bonds, property, and cash. Over time, these investments have the potential to grow, and upon reaching retirement age, they can be converted into a living annuity or a life (guaranteed) annuity. This conversion provides you with a steady income stream during your retirement years.

A Quick Note On The Two-Pot System: As of September 1st 2024, the two-pot retirement system splits retirement savings into three parts: a vested component (savings accumulated until August 31, 2024), a retirement pot (two-thirds of new contributions from September 1, 2024, accessible only at retirement), and a savings pot (one-third of new contributions, with limited annual withdrawals allowed). This system aims to improve financial security in retirement while offering some flexibility for financial emergencies. You can learn more about the two-pot retirement system here. 

Retirement planning is a lifelong process that requires continuous adjustments as you progress through different stages of life, and it’s important to adapt your strategy to reflect evolving personal circumstances and financial goals. Major life events like marriage, divorce, or the birth of a child can also call for a reassessment of your retirement planning and certain adjustments to suit your new life stage. In this quick read, we will be exploring how investors adjust their retirement annuity strategies during key life stages: early career, mid-career, pre-retirement, and retirement, to secure a comfortable future and avoid running out of money in their golden years.

Retirement Annuities And Your Early Career (20s-30s)

In the early career days, financial priorities tend to focus on building professional foundations, paying off student debt, and handling limited disposable income. For the self-employed in this life stage, there is often significant income variability from month to month, and for entrepreneurs, launching a business can demand substantial financial resources, which may limit the funds available for retirement savings. 

Many individuals in their 20s and 30s face challenges in consistently saving for retirement because of these immediate financial pressures. However, starting small and building the habit of saving early can make a huge difference in the long run. In this life stage, small but regular contributions are key. For those working with a limited income, setting aside just a small percentage of your monthly earnings can start building your retirement fund. Compound interest plays a critical role here too, as time in the market is often more valuable than the amount invested initially​. 

The longer your money remains invested, the more opportunity it has to compound, as reinvested interest generates additional returns. Over time, the compounding effect accelerates, allowing even small contributions to accumulate significantly. Starting early and maintaining consistent contributions are essential strategies to maximise the potential of your retirement annuity and achieve substantial growth over the long term.

If you’re considering purchasing a retirement annuity, but the seemingly inflexible contribution rules are worrying you, allow us to put your mind at ease. At 10X Investments, we offer not only incredibly low fees, but a flexible contribution structure that allows you to adjust your contributions based on your earnings. Our goal is to make it easier for you to secure a stable financial future with our adaptable contribution plans and flexible investment options. 

With a 10X Retirement Annuity, you can tailor your investment strategy to match your income levels, risk appetite, and personal financial goals. If your income varies, or you have a limited disposable income to work with, 10X provides flexible options to adjust contributions as needed. The minimum contribution starts at R500 per month, but you are also free to take breaks or make lump-sum contributions depending on your financial situation. 

If these standard options don’t suit you, our 10X consultants are available to offer you the benefit of their years of retirement savings experience so that you can create a personalised contribution plan that fits your unique circumstances, giving you the freedom to manage your retirement savings in a way that aligns with your financial realities. If this sounds good to you, don’t hesitate to get in contact and chat to a 10X consultant. 

You can also take a look at our handy retirement annuity calculator to get a rough idea of how much you would need to contribute to retire comfortably, and start building your own personalised retirement plan. While you’re at it, if you’re already contributing to a retirement annuity, head over to our EAC calculator to find out whether you could do better with 10X. You can also put us up against your current provider with a free and in-depth cost comparison.

Early Career Investment Strategies

Young investors typically have the advantage of time, which allows for a more aggressive approach to investing. With a longer horizon before retirement, investors in their 20s and 30s tend to have a higher risk tolerance, allowing them to recover from potential market downturns or financial setbacks. Because of this, many opt for an investment strategy that emphasises capital growth, with a significant portion allocated to high-risk, high-reward assets such as equities and property. 

While these investments offer the potential for substantial returns, they also expose young investors to greater market volatility, which can result in amplified losses during downturns. However, any short-term market volatility can often be weathered thanks to the extended time horizon. 

10X Your Future Fund

The 10X Your Future Fund is our flagship fund, designed to provide long-term capital growth through diversified exposure to both local and international asset classes. It primarily focuses on growth assets like equities and property, making it highly suitable for young investors with a higher risk tolerance. This fund allocates a larger portion of its portfolio to equities, which typically deliver higher returns over the long term but come with greater short-term volatility.

The fund’s high-risk profile means that investors benefit from the potential for significant growth, particularly if they have a time horizon of five years or more. This is ideal for younger investors who have the time to ride out market fluctuations and focus on long-term wealth accumulation. Additionally, the diversified approach, including offshore investments, helps to spread risk across various sectors and regions​. For young investors prioritising aggressive growth with a focus on equities, this fund offers consistent multi-asset benchmark outperformance, making it a viable option for those looking to maximise returns over the long term.

Retirement Annuities And The Mid-Career Life Stage (40s-50s)

During the mid-career days, individuals often have more financial responsibilities, having to pay off mortgages, handle family expenses, and plan for children's education. While these commitments can impact the ability to save, it's important to increase retirement annuity contributions as your income stabilises and debts decrease. This is the time when growth remains a top priority, but preserving the wealth already accumulated is important, too.

At this stage, many people choose to increase their retirement annuity contributions significantly to compensate for potentially lower contributions in earlier years. As mentioned, with a 10X Retirement Annuity, you have the flexibility to adjust your contributions, ensuring that you make the most of your peak earning years. 

A Quick Note On Tax: Maximising your retirement annuity contributions can help reduce taxable income, especially if you are in a higher tax bracket. Contributions to an RA are tax-deductible, and the investment growth within the fund is tax-deferred for as long as the investment gains stay within the fund. This allows your investment to grow more efficiently meaning more money for you after retirement. 

Mid-Career Investment Strategies

With retirement on the horizon, it’s a good idea to start balancing your portfolio by reducing exposure to high-risk assets while keeping some portion in growth assets to ensure continued capital appreciation. A mix of equities and bonds, with a shift toward defensive assets like cash, can protect your savings from market downturns while still providing growth. A balanced mix of both defensive and growth assets can be the key to growing your retirement savings without market volatility giving you grey hairs before your time. At 10X, by default we automatically adjust your investment strategy for you as you get older, but you can still choose to make your own investment decisions and have your funds in whichever asset classes you choose. 

10X Moderate Fund

The 10X Moderate Fund is a good fit for mid-career investors who are looking for a balanced approach between capital growth and risk management. It allocates a significant portion to growth assets like equities and property while maintaining a lower level of volatility compared to an alternative high-equity fund. This makes it well-suited for individuals in their 40s and 50s, who may still want growth but also need to start focusing on preserving their wealth.

With a time horizon of three years or longer, the fund’s diversification across local and international asset classes helps mitigate short-term risks while still aiming for medium to long-term capital growth. This is particularly beneficial for those with increased financial responsibilities like mortgages or education costs, who need a steady, balanced portfolio that can grow while reducing exposure to high-risk assets​. This fund strikes the right balance between growth and defensive assets, making it a viable option for investors transitioning from aggressive growth strategies to more conservative, risk-managed portfolios.

Retirement Annuities And Pre-Retirement (50s-60s)

At this life stage, investors may not have the extended time horizon to take on significant investment risks. While certain expenses like school fees will often decrease, it's crucial to focus on meeting future obligations, like increasing healthcare costs. It’s around this time, as you prepare for retirement, that a shift towards lower-risk investments becomes an appealing option.

Start Considering Your Withdrawal Options

Pre-retirees should also start considering their withdrawal strategies, as improper planning can lead to the depletion of savings too quickly. Upon retirement you will be required to use at least two-thirds of your fund proceeds to purchase an annuity. Should you opt to convert your retirement annuity to a living annuity, you would typically face a mandatory minimum drawdown rate of 2.5%. The Golden Equation suggests that drawdowns plus inflation and fees should be less than or equal to returns on investment, ensuring that savings last throughout retirement​. To better prepare for a financially stable future, you can read more about living annuities, adjusting your drawdown rates, and the power of the golden equation here. 

Pre-Retirement Investment Strategies

Funds that favour bonds and cash can protect your accumulated savings from market volatility and ensure financial stability in the years ahead. This conservative investment approach offers some security, although keeping some exposure to growth assets can still be beneficial to combat inflation​.

10X Defensive Fund

The 10X Defensive Fund is tailored for investors who prioritise stability and capital preservation, making it an ideal choice for individuals in the pre-retirement stage. This fund has a higher allocation to defensive assets, including bonds and cash, which provide lower volatility compared to more growth-oriented assets like equities and property. 

Its primary goal is to generate steady income with minimal risk, making it suitable for those nearing retirement who need to safeguard their accumulated savings. While it includes some exposure to growth assets, the focus remains on preserving capital. This balance is ideal for those looking to protect their wealth as they transition from wealth accumulation to wealth preservation​. With retirement right around the corner, maintaining a low-risk portfolio while ensuring sufficient income to cover future expenses is crucial, and the 10X Defensive Fund is designed to meet these needs.

Retirement Annuities And Reaching Retirement (60s+)

When individuals reach their 60s and the time to retire finally rolls around, many prioritise generating a steady income. At this stage, most investors’ ability to take on financial risk decreases significantly, and the focus shifts to generating a reliable income and protecting the wealth that has been accumulated up to this point. To achieve this, retirees are typically encouraged to focus on investments with lower volatility and to prioritise a steady income stream to ensure financial stability during their retirement years. 

Upon reaching the age of 55 (the minimum age for retirement in South Africa), or upon retirement after this age, you're required to use at least two-thirds of your fund proceeds to purchase an annuity. Retirement annuities can be converted into either a living annuity or a life (guaranteed) annuity, with each offering distinct advantages. 

A living annuity allows retirees to adjust their drawdown rate, providing flexibility, while a life (guaranteed) annuity provides a fixed income for life but without flexibility or growth potential​. Deciding which option is best for you is a crucial decision that can make or break your retirement savings plan so you’re going to want to give it a bit of thought. To learn more about the pros and cons of both living annuities and life (guaranteed) annuities, so that you can carefully weigh up your options, take a look at this article.

10X Income Fund

The 10X Income Fund is designed to provide both income and long-term capital stability, making it an excellent option for individuals in their 60s who are retiring and looking for a consistent income stream. This fund primarily invests in a diversified range of interest-bearing assets like bonds and cash, which are less volatile than equities. As a result, it is well-suited for living annuity holders who prioritise steady income and capital preservation over growth.

One of the key features of the 10X Income Fund is its ability to deliver a regular income, which is essential for retirees. It currently offers a forward yield of around 9.8%, ensuring a reliable monthly payout. Additionally, the fund's conservative risk profile and long-term stability make it ideal for retirees looking to minimise risk while still generating sufficient income for their living expenses​.

The recommended investment horizon for the fund is three years or more, which aligns with the needs of retirees who are focused on preserving their capital over the long term while drawing a regular income. This makes the 10X Income Fund a highly effective solution for those entering retirement and managing a living annuity.