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for your retirement plan

Planning for retirement is crucial to ensure financial security and peace of mind during your golden years. 

One of the most effective retirement planning options, standing above the rest in terms of reliability, certainty, and stability, is a life annuity – a financial product that provides a guaranteed income for life. 

Life annuities come in various forms, each with unique benefits. It's important to familiarise yourself with the different options available to find the one that best suits your needs. 

You can start by reading our comprehensive Annuities 101 guide, which provides detailed information about the various types of life annuities, their features, and benefits. 

Understanding your options will help you make an informed decision about the life annuity that aligns with your financial goals.

Let’s dive deeper:

The life annuity: a brief history

Life annuities have a fascinating history that spans several centuries. The concept of providing a guaranteed income for life in exchange for a lump sum payment first emerged in ancient times.

However, the popularity of life annuities rapidly started to grow in the 18th and 19th centuries when governments and private institutions started offering them as a means of providing a reliable, risk-resistant income.

Fast forward to today

Interestingly, life annuities dipped in popularity towards the end of the 20th century. This trend translated into retirees generally opting for living annuities instead. This was mainly due to greater perceived returns on their retirement investments with a living annuity.

However, today, economic uncertainty has become more rife: many savvy retirees are now realising the dangers associated with having their retirement investment wrapped up solely in investment markets.

Why choose a life annuity?

Offering a lower risk compared to other retirement income options, a life annuity is a perfect choice if your primary concern is eliminating some of the uncertainties associated with financial security in retirement.

With a life annuity, your income will never decrease, is guaranteed for life, and can continue to pay your spouse or dependants after you pass away, if you select a death benefit.

In this article, we will explore why investing in a life annuity for your retirement is a smart choice. Here are eight reasons to consider a life annuity as your retirement income solution:

1. A life annuity is risk-resistant

Other annuity products designed for retirement, like  living annuities, expose your investment to various risks associated with investment valuelongevity, and inflation.

Let’s take a quick look at these risks, how they work, and how a life annuity can counteract them:

Investment risk refers to the uncertainty associated with market fluctuations and the potential for investment returns to fluctuate. With traditional investments, such as stocks or bonds, the value of your portfolio can rise or fall depending on market conditions.

This volatility can create uncertainty in retirement income planning if your income is linked to investment market performance.

In contrast, life annuities provide a predictable income stream that is not affected by market performance. By choosing a life annuity, you can minimise the impact of market fluctuations and focus on enjoying your retirement without worrying about your income decreasing.

Longevity risk refers to the risk of outliving your savings due to increased life expectancy. As people are living longer, it becomes essential to ensure that your retirement income lasts throughout your lifetime.

With a life annuity, you transfer the longevity risk to your insurer. They bear the responsibility of providing income for as long as you live, giving you the confidence that you won't run out of money in retirement.

Inflation risk is another concern for retirees. Inflation erodes the purchasing power of your money over time. If your income does not keep pace with inflation, you may find it challenging to maintain your standard of living.

Life annuities, such as Just SA’s Inflation-Linked Income, offer protection against inflation as measured by the Consumer Price Index (CPI). This feature ensures your income retains its purchasing power in the face of rising prices.

2. A life annuity policy pays you a monthly amount for as long as you live

You may be worried about outliving your retirement savings, having your purchasing power eroded by inflation, risks to your retirement investments, or all three. These are valid concerns.

However, we believe that retirement income should never be uncertain. With a life annuity, you can have peace of mind knowing that your income will last as long as you do, as well as remain steady regardless of fluctuating economic conditions.

Life annuities eliminate the risk of exhausting your savings by providing a guaranteed  lifetime income that never decreases for as long as you live.

And unlike other retirement options – such as retirement investments linked to investment market performance (and their volatility) – a life annuity offers both income stability and financial security.

3. With a life annuity, you can set your monthly income to increase each year

For example, some life annuities, such as Just SA’s Fixed-Escalation Life Annuity, allow you to set a percentage by which your income increases each year.

The benefits of setting a fixed increase

One of the common reasons retirees will set a fixed-escalation increase has to do with inflation risk:

If you cannot afford full protection or you have reasons to believe inflation will remain below a certain level, you can set a predetermined percentage by which your income increases each year.

This means your income will continue to increase by this percentage every year for the remainder of your life and your annuity payment is partially secured against inflation.

However, it is important to remember that there are still income risks in the event that inflation increases significantly above the percentage of increase you select.

Other less common, but equally important reasons to set a fixed-escalation increase include:

Knowing that your income will increase annually provides greater predictability and allows for better financial management. It enables you to plan for future expenses and account for inflationary pressures.

This feature is especially important if you have long-term financial goals, such as funding healthcare costs or leaving a legacy for your loved ones.

By setting a fixed-escalation increase, you can safeguard your future income in line with your own expectations.

Life is full of surprises, and unexpected events or expenses can disrupt even the most well-prepared retirement plans. A fixed-escalation increase life annuity helps mitigate the risk of income shortfalls in the face of unforeseen circumstances.

The annual increase in your annuity payment provides a buffer against unexpected expenses or changes in your financial needs. It ensures that your income keeps pace with the evolving cost of living, providing a level of financial stability and reducing the risk of financial stress during retirement.

By incorporating this type of annuity into your retirement income strategy, you can enhance your financial security, maintain your desired standard of living, and better navigate the challenges and uncertainties that may arise during your retirement years.

4. A life annuity gives you the option to add beneficiaries

Uncertainty surrounding the financial protection of loved ones during retirement can lead to prolonged and unnecessary stress. Fortunately, most life annuity products offer the option to add beneficiaries or set up a joint or spouse’s annuity.

Adding a beneficiary to your life annuity can provide the financial security and peace of mind you need for your loved ones after passing away. By adding beneficiaries to your life annuity, you can ensure an efficient transfer of income in the event of early death.

Joint annuity

Additionally, a joint or spousal annuity can offer protection against premature passing. If you pass away, your surviving spouse will continue to receive an income.

This ensures that the surviving individual can maintain their financial well-being and cover expenses without interruption. Their income can either remain the same or be adjusted to reflect reduced expenses, as the overall financial obligations may decrease after the passing of one individual.

5. Use an investment portfolio to increase your income over the long-term

There is a type of life annuity that offers the unique advantage of utilising an investment portfolio to increase your income over the long-term – these are generally referred to as with-profit life annuities.

A with-profit annuity provides a guaranteed income for life with variable increases dependent on the performance of an underlying investment. By linking the performance of your investment portfolio to your annuity income, your with-profit annuity will have the potential to deliver higher income increases compared to traditional fixed options.

It is important to note that actual increases may vary from year to year and may not always align precisely with inflation rates.

However, over the long term, these annuities have demonstrated the ability to outperform inflation – offering enhanced income potential and protection during retirement.

Diversify and enhance your retirement income

One notable benefit of a with-profit life annuity is the diversification of income sources it provides.

By linking an investment portfolio to your life annuity’s annual increases, you are not solely reliant on fixed increases – you can benefit from positive investment performance, which can help secure greater future increases.

Additionally, these annuities offer a level of protection against market downturns. Even if investment markets perform poorly your income will not decrease, since they are structured as life annuities with guaranteed payments.

Overall, using an investment portfolio to increase your income through a life annuity offers several advantages.

Just SA offers a with-profit annuity in two forms: a standalone life annuity and as an income portfolio in a blended living annuity.

A blended living annuity combines the benefits of a life annuity with the flexibility of a living annuity. A living annuity provides you with control over your investment portfolio and the ability to adjust your income withdrawals based on your needs.

By blending the benefits of a life annuity with a living annuity, you can enjoy the potential for growth and inflation protection through capital appreciation while still receiving a guaranteed income for life. This option provides diversification of income sources, allowing you to balance the stability of a life annuity with the potential growth of your investment portfolio.


6. Enhance your income by choosing an insurer that provides underwriting at retirement

Choosing an insurer that offers underwriting at retirement can significantly enhance your starting income.

Underwriting is a process where your insurer evaluates factors such as your overall health, medical history, lifestyle, and socio-economic status to determine the annuity rate for your particular policy.

The process allows you to potentially secure an uplift in your annuity rate based on your individual circumstances. By taking into account your specific health and lifestyle factors, underwriting can result in a more tailored income that aligns with your unique situation.

In South Africa, Just SA is the sole provider of underwriting at retirement. Selecting Just SA as your retirement annuity provider opens up the opportunity to enhance your income by obtaining optimised annuity rates.

7. A life annuity allows you to set a guaranteed payment period

When choosing a life annuity policy, it is possible to set a guaranteed payment period, which can be  5, 10, 15, or 20 years.

By incorporating a guaranteed period into your annuity, you have added insurance that your designated beneficiaries will receive an income (or a lump sum payment) within a specified time period.

This can alleviate the uncertainty surrounding the financial protection of your loved ones by providing them with certain financial stability and support in the event of your passing.

If you have added beneficiaries to your policy, adding a guaranteed payment period provides you with greater control over legacy planning.

8. Choice of life annuity offers flexibility in income payments

Life annuities offer choice in payment structures, allowing you to choose your retirement income to meet your specific needs and preferences. You can choose an annuity product to match your income needs to your financial goals.

Choosing a life annuity that either increases by a certain amount, or is linked to investment performance or inflation, ensures that your retirement income aligns with your lifestyle requirements and provides the financial security you desire.

Investing in a life annuity with Just SA

When it comes to securing a reliable and stable retirement income, investing in a life annuity is a smart choice. With numerous benefits and advantages, a life annuity can provide the financial security and peace of mind you deserve during retirement.

By investing in a life annuity, you can enjoy a monthly income for the rest of your life, eliminating the risk of outliving your money. Whether you choose a level life annuity, fixed-escalation annuity, inflation-linked annuity, or an investment-linked annuity, you can tailor your income to your specific needs and financial goals.

Discover enhanced retirement income possibilities with our annuity solutions. Explore our wide range of annuity products.

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