Brett Mackay, Senior Investment Consultant at 10X Investments
After decades of saving, retirement comes with a new question: how do you ensure the money you’ve accumulated lasts as long as you do? Draw too much, and you risk running short later in life. Draw too little, and you may not enjoy your retirement the way you want.
Ready to retire? Here’s how a living annuity works
A living annuity is one option worth understanding when it comes to achieving that balance. Put simply, it turns your retirement savings into a regular income, while the money you don’t draw stays invested.
It’s a popular choice. According to the Association for Savings and Investment South Africa (ASISA), South Africans had R911.7 billion invested in living annuity assets at the end of 2025, up 45.7% from R625.9 billion at the end of 2022.
Every year, you choose how much income to take, anywhere from 2.5% to 17.5% of the investment’s value. You can receive income monthly, quarterly, every six months, or annually. You can change your drawdown rate once a year on your policy’s anniversary date. Whatever you don’t draw remains invested, where it can rise and fall with the markets.
Don’t run out of money
That flexibility comes with responsibility, because how much you draw has a big effect. Draw down too much too early, and the remaining capital has less time to recover.
Three factors influence how long your money lasts: how much you draw, how your investments perform, and inflation. Your drawdown is what you take out. Investment returns are what your capital earns to replace those withdrawals. Inflation means you will need a higher income each year to buy the same things, so your withdrawals tend to rise over time.
Think of it like farming. Each year, you can sell the harvest and live on it. But if you start selling the seed you need for next season, every harvest after that gets smaller, and a drought becomes much harder to survive. Keep enough seed in the ground, and the farm can keep producing for years to come.
That’s why drawing down the maximum amount, especially early in retirement, can put real pressure on your capital. Most retirees seem to recognise this. According to ASISA, the average drawdown rate was 6.6% in 2025, while about 72% of living annuity assets sit in drawdown bands of 7.5% or less.
Your needs will also change over time, so it’s worth reviewing your income level every year on your policy anniversary. A qualified investment consultant can help you find a drawdown rate that supports your lifestyle without leaving you short later on.
What does a living annuity cost?
Fees are easy to overlook, but they reduce the capital that earns future returns, and small differences add up over a retirement that could last decades. Fees are also deducted every year, whether markets are up or down. Yet, according to the 2023/2024 10X Retirement Reality Report, 37% of respondents didn't know how much they paid in fees on their retirement annuities.
Before you choose a living annuity, make sure you understand its full cost, including administration, advice, investment management, and trading charges. Ask providers for the Effective Annual Cost (EAC), a standardised measure of an investment's total cost. That allows you to make like-for-like comparisons of the available options. It’s also worth checking for any upfront or exit fees, and whether advice is charged separately.
What happens to your living annuity when you die
A living annuity also allows you to consider the people who matter to you as part of your retirement plan. When you die, the remaining value of your living annuity is dealt with according to the legislation governing retirement products and the product’s own rules. Depending on the circumstances, a qualifying beneficiary may have different options for receiving the remaining benefit, such as a lump sum, an annuity, or a combination of the two.
The tax your beneficiaries pay will depend on the option they choose and their circumstances. As such, it’s important to keep your nominations up to date after major life events such as marriage, divorce, births, or deaths. And remember that what remains will depend on how much you’ve drawn and how your investments have performed.
Plan for the retirement you want
A living annuity offers flexibility, but it asks you to make careful choices about your income, investment strategy, fees, and beneficiaries. Review those choices annually, get qualified advice when you need it, and adjust as your circumstances change. With a sound plan in place, your savings stand the best possible chance of supporting you through the retirement you’ve worked for.
This article is provided for general information purposes only and does not constitute financial advice as defined in the Financial Advisory and Intermediary Services Act (FAIS). The statistics and research cited herein are for informational purposes only. Past investment performance is not a reliable indication of future performance. This information does not take into account your personal financial situation, needs, or objectives. Readers are encouraged to seek advice from a qualified financial adviser before making any financial decisions. 10X Investments is an authorised financial services provider, FSP licence number 28250.