Riëtte Coetzee and Riaan Campbell

Advisory Partners


For most people, the capital saved in their retirement funds is their primary source of income when they call it quits on the proverbial nine-to-five. However, it is often only at retirement that people really start taking stock of what investments they have available to see them through the latter years of their life.


On or nearing retirement, you will be advised to look at the combined capital in your pension-, provident- or preservation funds and/or any retirement annuities.  This is the time when your choice of a financial product to provide retirement income becomes critical. This decision will have a major impact on your financial future. That is why at Citadel, we always advise clients on the benefits of a Living Annuity, which we believe is one of the top offerings in this menu of choice.


When Citadel was founded in 1993, the wealth management industry as we know it today, was still in its infancy. Administration platforms for unit trusts didn’t exist at the time. In the day, traditional guaranteed annuities with life companies were the default option for retirement capital seeking a “home” to produce income. Fortunately, product inventors, who were essentially ahead of their time, came up with an annuity linked to investments, as opposed to traditional annuities where capital is forfeited at the death of the annuitant. This new product was introduced to the industry as a breath of fresh air, and marketing the idea was taken to the next level with a punchline still relevant today – “the annuity that doesn’t die with you”.



A Living Annuity is an annuity that is linked to unit trusts, cash investments or share portfolios on an administration platform, and is underwritten by a life company. Living Annuities are regulated by amongst others the Income Tax Act and the Insurance Act No. 17 of 2018. Within a Living Annuity you are allowed to withdraw an income of between 2.5% and 17.5% of your investment value per annum, paid annually, quarterly or monthly. The Living Annuity can be converted to a guaranteed life annuity at a later stage in your life, if needed. You may nominate one or more natural persons or legal entities as beneficiaries of the remaining capital within your investment in the event of your death.



The most significant difference between a Living Annuity and pre-retirement assets have a lot to do with the investment flexibility a Living Annuity offers.  A Living Annuity does not need to adhere to Regulation 28 for pre-retirement funds, which prescribes how you are allowed to invest. This gives investors the opportunity to choose from a broader range of investment opportunities, and align their investments with their financial objectives at retirement, to essentially beat inflation and produce an income. As an example, should you want to hedge a bigger portion of your assets into international markets, you are allowed to do so by increasing your offshore exposure. As a result, you will be able to take advantage of a depreciating rand as well as growth from international markets. Furthermore, investors should use their Living Annuities in relation to their entire investment portfolio. You can make use of the flexibility it offers to balance out over-concentrated assets within a current portfolio by including asset classes with lower exposure.



A Living Annuity offers tax benefits as it is exempt from dividends tax, capital gains tax and income tax. Although you would have enjoyed the tax benefits of contributing to a retirement fund while you were working, once you draw income from a retirement fund you will be taxed on the income according to the income tax table.



A Living Annuity does not trigger any estate duty or executor’s fees, which is a huge benefit for succession planning. Upon death of the annuitant, the nominated beneficiary may choose to step seamlessly into the shoes of the annuitant and transfer the Living Annuity to their name(s), take the capital as lump sum or a combination of a lump sum and a Living Annuity.  If the beneficiary chooses a Living Annuity, they will be able to decide on a new income withdrawal rate, the frequency of the payment and nominate a new beneficiary.


In the absence of a nominated beneficiary, the proceeds will be paid to the estate of the deceased and taxed according to the deceased’s retirement tax sliding scale. The executor will deal with the cash in the estate according to the nominated heirs in the will of the deceased and executor’s fees will apply.  



To get the best lifespan from your Living Annuity, an acceptable withdrawal rate for a person aged 65 is approximately 5%. This will allow an annuitant to increase their income annually with inflation while drawing down on the investment capital.


It is important to know that as you reach a withdrawal rate of 6% or higher, it becomes harder for your investment to keep up with inflation especially in a low investment growth environment. With a higher withdrawal rate your income will become unsustainable and you will run out of capital.


The golden rule for sustaining your wealth is to withdraw no more than 4% of your capital in the Living Annuity. In this case, there is a good chance that your capital will not only support your lifestyle in real terms but will leave a substantial portion behind for your heirs.



One of the disadvantages of a Living Annuity is that there are no guarantee on your capital, as it is linked to investment performance. Even though the Living Annuity does not attract any tax within the investment, the growth will completely depend on the underlying assets combined with the withdrawal rate. As you become an annuitant your mind-set needs to shift from of investing and buying assets, to producing income and selling the right assets in order to produce your income. To be effective and optimise your portfolio you will need to ‘sell’ the right assets at the right time while navigating through market cycles.


Once a year at the anniversary date of the Living Annuity, the annuitant is allowed to change their income percentage and frequency.  This is one of the reasons why it’s important to understand your cash flow requirements as it allows you to plan and adjust the income accordingly.


Additionally, you do not have access to the funds for an emergency expense or if you emigrate from South Africa. The Living Annuity will always remain a South African investment and will only pay to a South African bank account. For people living overseas, the money must first be paid to their South African bank accounts and thereafter converted to their chosen currency.  Fortunately for emigrants there is no prescribed asset exposure and they will be able to hedge the Living Annuity against currency depreciation by increasing their offshore exposure without any tax clearance.



A well-managed Living Annuity can be a very effective and powerful instrument for retirement planning. It offers the freedom of choice in providing income with your hard-earned retirement capital. Keeping this portion of your assets independent of your estate makes it attractive for ensuring a seamless transition to your beneficiaries. Keep in mind that this investment vehicle is not for everyone and your personal circumstances need to be taken in account when plotting your financial future post-retirement.


Citadel Investment Services Proprietary Limited (registration number 1996/006847/07) is licensed as a financial services provider in terms of the Financial Advisory and Intermediary Services Act, 2002.