Finding the best living annuity South Africa has to offer

Finding the best living annuity South Africa has to offer can significantly influence your financial comfort post-retirement. A living annuity is a retirement savings investment product that allows you to draw a regular income in retirement while keeping your initial capital invested. With a living annuity, you are able to adjust your drawdown rate annually (between 2.5% and 17.5%), and you are also granted flexibility to adjust your investment portfolio and asset allocation strategy according to your changing needs and risk tolerance.  

Securing financial stability in retirement is essential, and seeking out the best living annuity South Africa has to offer can be integral in balancing capital preservation with growth potential. Opting for a living annuity over other retirement income products like life (guaranteed) annuities, and choosing a reliable living annuity provider (with low fees and a transparent fee structure) can set you on track for a comfortable retirement.  

In this brief guide, we’ll be covering what you need to know about living annuities as well as 10X’s innovative approach to retirement savings. At 10X, we simplify retirement savings with low fees, a proven track record of success, and an easy-to-understand approach to investing.  

The first step to making smart investment decisions is understanding the basics. Considering your effective annual cost and the impact of fees, inflation, asset allocation, offshore exposure, and drawdown rates will help you ensure you don’t run out of money in your retirement. We’re here to equip you with the knowledge needed to make well-informed, well-researched investment decisions for your future life as a retiree.  

Does 10X Have The Best Living Annuity in South Africa? Probably 

A Brief Living Annuity Recap 

A living annuity is a retirement savings investment product designed to provide you with a regular stream of income during retirement. The main goal of living annuities is to invest your funds in various assets, so that you can sustain yourself on the returns generated by these investments rather than depleting your original capital. By keeping your retirement savings invested, you can continue generating returns on that investment in order to sustain yourself throughout your retirement years and reduce the risk of running out of money in retirement.  

Unlike a life (guaranteed) annuity, which provides a fixed income for life, a living annuity allows you to adjust your income withdrawals and maintain control over your investment choices. With a living annuity, you have the investment flexibility to choose how your retirement funds are invested, including the option to allocate up to 100% of your savings offshore through providers like 10X. This allows for significant diversification of your investment portfolio.  

Additionally, living annuities offer adjustable income withdrawals, allowing you to draw between 2.5% and 17.5% annually. This adaptability means you can adjust your income based on your shifting financial needs throughout retirement. Moreover, living annuities can be passed on to nominated beneficiaries after your death, ensuring that your remaining savings continue to benefit your loved ones (which is not the case with the majority of life annuities). 

Living Annuity Rules in South Africa  

Unlike other retirement investment products, living annuities are not subject to Regulation 28 legislation. However, there are minimum and maximum allowable drawdown rates, and tax implications. 

SARS sets the limits on annual living annuity withdrawal amounts. All retirees are limited to withdrawing a maximum of 17.5% of the remaining capital of the fund per year. On the other hand, a minimal withdrawal of at least 2.5% is obligatory. Once you’ve purchased and invested in a living annuity, you can’t just cash out. You can only draw funds in accordance with the regulations of the annuity. 

In South Africa, Regulation 28 of the Pension Funds Act limits the offshore investment exposure of retirement funds to 45%. However, living annuities are not subject to these restrictions, which allows for greater flexibility in investment choices. 10X offers up to 100% offshore exposure for clients who would prefer it, although our data suggests that 40-60 percent for a predominantly Rand-based investor is a healthy number, depending on how your total assets and liabilities stack up. This unrestricted access to international markets allows living annuity investors to further diversify their portfolios and potentially enhance returns alongside mitigating the many risks associated with the South African market. 

Note: While the absence of regulatory limits on offshore investing with your living annuity can offer increased investment freedom, it’s important to keep in mind factors like currency risk, geopolitical stability, and international market dynamics. To learn more about offshore investing with your living annuity, click here. 

In terms of taxation, your fund transfer into the annuity itself is tax-free. Additionally, you’re not taxed on your investment return. You pay income tax on your living annuity withdrawals, much like with a regular salary, according to the standard income tax tables in South Africa. With 10X, you can be sure that any regulations are presented upfront and transparently to ensure you know exactly what your choices entail. To learn more about the rules governing living annuities in South Africa, take a look through our guides and blogs or get in touch with a 10X consultant to discuss whether or not a living annuity is right for you. There are no call centres here at 10X, only expert consultants ready to discuss your options with you.  

Living Annuity Fees in South Africa 

Fees are a crucial consideration when investing in a living annuity. Low fees can facilitate long-term investment growth, allowing more of your funds to be reinvested, whereas high fees can stack up over the long-term, significantly diminishing your capital and reducing the total value of your savings. So, let’s talk about fees, and what makes the 10X Living Annuity an outstanding option in this regard.  

When considering the fees you’ll be paying on your living annuity investment, it’s important to understand how fund performance, total fees (including management and administration fees, and others) and inflation interplay. Fund performance refers to the total returns you make from the investment within your living annuity fund – this is shaped by market conditions and investment strategy. Management and administration fees will not affect your fund performance, however, they will lower the returns you receive. Your returns after these fees have been subtracted are known as your net investment returns.  

While some living annuity providers may promise exceptional fund performance, it’s important to keep an eye on the management and administration fees you’ll be charged on your investment as high fees equate to lower net investment returns – the number that really matters.  

Alongside fees, inflation is an equally important consideration. Inflation refers to the erosion of purchasing power over time, meaning what you can afford with a certain amount of capital today will be reduced over the long term as inflation continues to rise. In short, inflation must be factored in alongside fees as it too will diminish the real value of your net investment returns.  

To lay out in numbers, let's consider an investment of R100,000 with an annual return of 8%, equating to R8,000. With a 1% fee, earnings drop to R7,000. With inflation at 3%, the real value of your earnings would effectively be about R4,000. If fees rise to 3%, net earnings drop further to R5,000, and after inflation adjustments, the real value reduces to just R2,000. While inflation is out of your control, the fees you pay on your investment are not – and here you can clearly see the necessity of low fees in preserving investment value and ensuring your funds last throughout your retirement.  

Outpacing Inflation: The sustainability of your living annuity and your capacity to outpace inflation also depends on your drawdown rate. Too high a rate can exhaust your funds prematurely, particularly under conditions of low returns or high inflation. The "Golden Equation" (Drawdowns + Fees + Inflation ≤ Return on Investment) simplifies the necessary balance between expenses and returns so that you can ensure your savings sustain you throughout retirement. Strategic asset allocation is also vital, enabling you to manage inflation risk with a diversified portfolio that suits your long-term retirement needs while considering your risk tolerance and investment horizon. 

When discussing fees, we’re referring to everything from management fees, administration fees, performance fees and potential hidden costs – all of which can stack up to greatly reduce your net investment returns. As you can see, high fees, when coupled with inflation, can significantly hinder the growth potential of your living annuity investment – which is why it’s important to seek out a living annuity provider with low fees and complete transparency in terms of what you’ll be paying on your investment. This is where you’ll want to consider your effective annual cost. 

The Effective Annual Cost (EAC) provides a standardised yearly measure of total investment costs, including all fees (management, administrative, advice fees, along with any costs related to early exits or bonuses). By seeking out and comparing the EAC across various living annuity providers, you can identify which provider can offer the best living annuity product for you. A lower EAC is a good sign as this means more of your money is being reinvested and put towards generating stronger returns. 

Best Living Annuity in South Africa: The 10X Fee Model 

Our low fees are just one reason why many consider the 10X Living Annuity to be one of the best in South Africa. We prioritise cost-effectiveness and complete transparency with a straightforward fee structure and no upfront, advice or exit fees to worry about. Our goal is to keep fees low so that you have more money to carry you throughout retirement and this value reflects in our sliding scale fee structure. The 10X fee model ensures that, as your investments increase, your fees decrease, allowing you to make the most of the compounding growth on your investment.  

We also offer tools like our EAC calculator to facilitate transparent management and planning of your investments. Try out our calculator to determine your EAC and see how much you could be saving with 10X investments.  

Another way that we keep fees low is through our direct investment model (as opposed to the usual financial and investment advisory and management services offered by various providers). Financial advisors, while potentially adding value in some areas, usually come with high fees. They can provide professional expertise and guide you in terms of making investment decisions, but you need to weigh up the value provided with the high fees involved when considering which route to take.  

Many investors are under the impression that working with a financial advisor is a must when purchasing a living annuity, but if you have a firm grasp of the relevant facts, going the direct investment route might make more sense. After all, why spend an exorbitant amount on investment guidance when you can help yourself get the retirement you deserve?    

Gaining confidence in investing independently is possible when you have all the tools and information you need to educate yourself on personal finance and investment strategies.  

The Best Living Annuity in South Africa Calculator 

Here at 10X, we have a wealth of information available on our website such as guides, blogs, calculators and more so that you can manage your money on your own terms. We also offer expert investment consultants who are available to discuss your options with you free of charge when you decide to go the direct investment route. As mentioned earlier, there are no call centres at 10X, so you won’t have to worry about wasting time waiting for a response – you can expect real people with extensive knowledge of retirement planning ready to chat with you. 

Living Annuity Calculator 

The 10X Living Annuity Calculator can be used to calculate how much capital you require in order to maintain your desired retirement income. By inserting your current age, retirement age, and your retirement savings, the calculator will generate an expected monthly income using a drawdown rate of 5% and an inflation rate of 6%. You are also able to toggle between ‘average returns’ and ‘below average returns’ as well as ‘investment’ and ‘income’ values. 

How The Best Living Annuity in South Africa Is Structured: Index Tracking VS Active Management 

Another way that 10X keeps fees low is via index-tracking. Index-tracking funds are popular for their cost-efficiency and straightforward investment approach. These funds aim to replicate the returns of a specific benchmark index, with close alignment with the index's performance. On the other hand, actively managed funds rely on the expertise of fund managers to potentially surpass the benchmark, a goal that comes with higher performance volatility and typically higher costs. 

This makes the 10X Living Annuity one of the best options in South Africa, particularly for those seeking a stable and cost-effective retirement investment. With index-tracking, 10X is able to minimise the costs associated with active management. This allows for more of your investment returns to be preserved, boosting the growth potential of your retirement savings.  

Choosing The Best Living Annuity in South Africa: Reviews From Our Clients

One way to determine the best living annuity South Africa has to offer is by simply taking a look at what current clients have to say about the product and provider. 10X is proud to boast plenty of satisfied clients with testimonials available on our website and from HelloPeter that highlight the many aspects of our living annuity offerings that resonate positively with investors. For firsthand insights into our customer service, investment flexibility, low fee structure and more, take a look through our testimonials and see what our clients have to say about 10X. 

Many clients appreciate 10X’s commitment to low fees, noting how this aspect helps maximise their retirement savings potential, with clients like Felicia Roman stating that, 'I have been a 10X client for just over a year. I could see that in the past year the capital I invested in my living annuity with 10X has grown substantially.' 

Clients have also expressed satisfaction with 10X’s transparent fee structure, like Mike Smith who stated, 'What I appreciate about 10X is the transparency and disclosure of fees, unlike other companies who try and sneak them past you.'

The testimonials also commonly mention the personal touch and expertise demonstrated in the customer service that 10X provides. Clients feel empowered to tackle their investments independently thanks to the 10X consultants who are readily available to discuss investment options, with Felcia Roman stating:'I think it is companies like 10X, who are disrupting this industry, who are making it so much easier for people who don’t understand retirement to get closer to understanding and taking control of their own retirement planning.'