A gift that keeps on giving in retirement

Retirement is probably the only time you can justify spending your life’s savings. With current laws requiring that pensioners buy a living or life annuity product with at least two thirds of their retirement savings when they retire, it’s also likely to be a gift that you buy yourself and may not be wrapped as you would expect.

Bonolo Mosoane, Business Development Manager at retirement income specialist Just SA, calls guaranteed life annuities the “retirement gift that keeps on giving”.

Life annuities generate a steady income stream in retirement, every month, for the rest of your life. This offers peace of mind, knowing that your income will never stop (nor decrease) while you are alive, so you can feel confident in your ability to have a regular paycheck for the rest of your life.

Mosoane lists three ways in which life annuities benefit retirees, not just at Christmas time, but in an enduring way.

Life annuities never run out

The most attractive feature of a life annuity is that it cannot run out. This gives you increased security, as your monthly income and expected annual increases are priced in at the beginning of your contract. And because your income will not decrease, you can look to set the amount to meet your essential expenses for life, which should reduce the risk of living longer than your retirement nest egg can cover.

Income from a life annuity can be paid to a spouse or dependent when you pass away 

There is a common misperception that any remaining capital within a life annuity dies with the main annuitant and cannot be passed onto a spouse or dependants. However, it is possible for your life annuity to keep on giving even when you’re gone.

There are two death benefit options that can be added to your life annuity policy. A minimum payment period is where the full monthly income will continue to be paid for a specified period (usually 5 or 10 years) regardless of when you pass away. A spouse’s income can be set at 50%, 75% or 100% of the monthly income, which will be paid to your spouse for the remainder of their life, after you pass away.

Blended annuities can give even more

One way to use your life annuity to gift yourself some extra income, is by purchasing it as part of a blended living annuity. As a more modern living annuity, a blended annuity gives you access to the benefits of a life annuity within the living annuity investment portfolio. This blend of two retirement income products gives you a level of secure, guaranteed income, which can serve as a safety net throughout your retired life. It also reduces the risk of turning to children or other relatives for financial support in your final years. And the more flexible living annuity component allows you to choose how much to re-invest and how much to draw from the remainder of your assets, which can provide you with additional income for discretionary spending.

“At this time of year, we typically see excess spending as people look to shower their loved ones with gifts, which they may not really need” concludes Mosoane. “At Just SA, we believe that the best gift a retiree can give themselves, and their loved ones, is the peace of mind that comes with being financially secure in retirement. So, while you are spending, it could be wise to consider a retirement income option that will stand the test of time – and only a life annuity is guaranteed to do that.”