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:

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 value, longevity, and inflation.

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

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:

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.

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.