Living annuities became popular in South Africa in the 1990s. Many who have bought living annuities are now in the age range of 75 to 85. The example of Eddie and Priscilla that we sketched in our previous e-mail demonstrates clearly how living annuitants in South Africa face a significant risk of outliving their assets.
Most living annuitants in this age range would feel comfortable having a drawdown rate as low as 8% to 10%. However, the example showed how quickly this drawdown rate escalates - from 9,33% at age 80 to 13,1% at age 85 - once the income they need to draw exceeds the investment earnings after all fees and charges, and assets start to decrease each year.
This scenario would be even worse should there be an investment market shock, as our graph below shows:
If the investment market yields -10% one year and recovers to +20% the following year, a client aged 75, maintaining a fixed drawdown amount annually, will reach the 17,5% drawdown cap four years earlier than illustrated in our example of Eddie and Priscilla.
Many living annuitants do not realise the urgency of considering the merits of an enhanced with-profit annuity compared to a living annuity. The Just Retirement Enhanced With-Profit Annuity would provide a guaranteed income for life which could potentially be enhanced for those who qualify due to health and lifestyle factors.
A retiree is only eligible for conversion to a Just Retirement Enhanced With-Profit Annuity before the age of 85.
Just Retirement is extremely concerned about this vulnerable portion of the retired population who may be denied the opportunity of additional comfort in their advanced years. Our group has, since inception, successfully provided improved customer outcomes to retirees in the UK and now also SA.
We hope to be able to provide quotes to all retirees invested in living annuities who are between the ages of 75 and 85, are potentially at risk of running out of retirement income, have had a health scare or who want to annuitise for any other reason.
If you have any queries please email