Securing your retirement income

If you're approaching retirement with a life full of plans, you're not alone. It's common to set specific goals for retirement, such as travel, hobbies, or spending more time with family. 

However, meeting your retirement goals often requires careful financial planning. According to Just SA's 2024 Retirement Insights, 84% of retirees said keeping pace with rising living costs is their biggest concern.

The challenges:

• SA inflation has only been below 5% for 10 calendar years since 2000
• Market movements are increasingly unpredictable
• Healthcare costs continue to outpace general inflation
• Life expectancy is increasing

Given your retirement goals and these challenges, the big question is: 

How do you balance having enough income now to enjoy a well-earned retirement while still ensuring your income keeps pace with increasing costs later on? 

Understanding the various structures that will provide you with an income in retirement is a good way to start answering this question. Let's explore the main retirement income options to help you address these concerns.

Your options at retirement

In South Africa, when you retire you have three main choices:

1. Living annuity: A flexible investment product where you choose your yearly income (between 2.5% and 17.5% of your capital amount) and have control over your investment choices, but you carry all investment and longevity risks while you are alive. When you die, your leftover money can go to your family. 

2. Life annuity: A guaranteed monthly income for life that never decreases. You trade access to your capital for income security for the rest of your life. A few types of life annuities are available in South Africa, each with different annual increase options:

• • With-profit annuity: Annual increases depend on long-term investment returns
  • Inflation-linked annuity: Guarantees increases that are equal to inflation (CPI)
  • Fixed escalation annuity: Increases by a set percentage each year

1. Blended annuity: Guaranteed income delivered into a living annuity structure — this way, you can split your savings between guaranteed income for essentials and fixed costs and flexible income for extras. 

While each option has distinct advantages, the key is to understand how they align with your retirement goals. Let's examine how these different approaches work in practice.

Finding the right balance

If you want to manage your retirement savings, a pure living annuity offers just that — you’re in charge, and you choose how much to draw each year. But will the risk of market volatility disrupting your income keep you up at night? And does making stressful investment decisions in your later years sound doable? With a pure living annuity, you carry lots of risk, and that's worth considering.

In contrast, traditional life annuities guarantee certainty — guaranteed income for life without investment worries. Recent trends show a significant shift from living annuities to 5% fixed escalation annuities. The issue is, will inflation stay below 5% over the next 20 years?

The investment markets don't think so! The yield curve predicts inflation to rise to 7.5% in 10 years and 9% in 15 years, averaging 8% over the next 20 years. This means a 5% fixed escalation annuity could see your income drop by 30% in real terms.

You might consider opting for larger increases, but that means accepting a lower starting income, creating a difficult trade-off between income now and later on.

What if you could have guaranteed income for life AND the ability to control a portion of your retirement capital for discretionary spending? If this appeals to you, exploring the blended annuity option is worth considering. 

Explaining blended annuities

A blended annuity combines guaranteed income from a life annuity within a living annuity structure to provide reliable income and investment flexibility. You can receive a guaranteed monthly income to cover essential expenses while still having flexibility over a portion of your savings. 

• The guaranteed portion provides peace of mind with an income that's secured for life, no matter how long you live or what happens in investment markets.
• The living annuity portion offers flexibility in withdrawals (within regulated limits) and investment choices. 

This unique solution provides both certainty through a lifetime income guarantee and the freedom to access a portion of your capital or leave it to heirs. Remember, the risks associated with living annuities we discussed earlier would still apply to your living annuity portion. 

But you may have a low-risk appetite, preferring to avoid the challenges associated with the living annuity portion entirely. However, you still want to give your savings some investment exposure. In that case, a with-profit annuity may be the ideal option. 

Explaining with-profit annuities 

As we’ve said, with-profit annuities guarantee income for life and your annual increases are linked to investment returns. Your income will never decrease, no matter what happens in the markets, but your annual increase could be 0% if investment markets perform really poorly over time. However, your income can increase above inflation if a chosen investment portfolio performs well over time. The choice of portfolios is yours, and you can choose from a list of funds managed by leading asset managers. 

While you might start with a slightly lower initial income compared to other fixed increase options, you gain: 

• Guaranteed income 
• Investment-linked increases that could outperform inflation
• Income that can never decrease
• Low investment risk and zero longevity risk 

A with-profit annuity offers an ideal solution for those seeking security with investment-linked income growth opportunities. Let's explore how Just SA's with-profit options help balance guaranteed income with the potential for income increases in retirement. 

Introducing JuLI 

Just SA’s JuLI (Just Lifetime Income) is a with-profit annuity that offers all the above features as a standalone life annuity or lifetime income portfolio in a blended living annuity. JuLI provides uncapped annual increases that target inflation, or a percentage above inflation, to keep up with the cost of living.

You can choose from one of three increase options: 

• JuLI HiGro has the lowest starting income and the highest future increases
• JuLI HiYield has the highest starting income and the lowest future increases
• JuLI StableGro has a moderate starting income and moderate annual increases

Find out more here or by downloading our JuLI brochure.

Building on JuLI's foundation of guaranteed income and potential growth, Just SA recognised that some retirees prefer more income in their early retirement years. This led to the development of JuLI Advance, an innovative enhancement to the standard JuLI offering.

Let’s explore how it works. 

What is JuLI Advance? 

JuLI Advance is a feature that can be added to JuLI. It is ideal if you want a higher starting income in retirement. Think of it like choosing a larger slice of cake today, knowing that future slices could be a bit smaller — but you will always get cake! It’s a way to enjoy more income now, with a balanced, dependable income stream in the future.

Key features:

• 5% to 15% higher starting income compared to standard with-profit annuities
• Annual increases linked to six-year smoothed investment performance, but capped at 15%
• Income can never decrease, and income is guaranteed for life

Here’s what JuLI looks like with and without the advanced feature. 

Enhance your annuity income with underwriting

Just SA is the only South African life insurer offering underwriting at retirement. Whether you choose JuLI or JuLI Advance, our underwriting process could qualify you for an even higher starting income based on your personal circumstances.

How underwriting works:

• A professional Just SA underwriter conducts a friendly 20-minute phone call with you
• No new medical tests or paperwork are required
• We assess your circumstances through standard questions about:
  • Socioeconomic context
  • Lifestyle factors
  • Health conditions

Possible outcomes: 

• Standard quote based on age and gender
• Enhanced quote with higher starting income based on personal circumstances
• Your annual increases remain unchanged, working exactly as described for your chosen option

Key features:

• No cost for underwriting
• No obligation to accept quotes
• No paperwork needed (unless you prefer manual completion)
• No medical examinations are required
• There is no negative impact on your original quote — you can only qualify for the same or a higher income

Making your retirement dreams possible

Remember, making your retirement dreams a reality is possible only through careful planning. When it is time to select your retirement income structure, ask yourself the following questions: 

• Will my income keep up with inflation, especially healthcare costs?
• How much investment risk am I comfortable taking?
• Do I need access to capital or inheritance benefits?
• What's the right balance between income now versus income later?
• Should I split my retirement between guaranteed and flexible income?

Given the complexity and long-term impact of these decisions, we recommend discussing the answers to these questions with a qualified financial adviser who can help you better understand your retirement needs.