An innovative solution to the risk-reward dilemma in retirement

When approaching retirement, people are often beset with an array of challenging emotions.

There can be feelings of vulnerability compounded by the fear of becoming a burden on our loved ones. Feelings of loss and even failure might also be in play – loss of a former sense of meaning or loss of dignity and independence.

And did you know that people sometimes fear running out of money more than they fear death?

In addition to grappling with their emotions, retirees also must grapple with the silent killer of their retirement income: inflation. Even though the rate of inflation is slowly starting to come down, it is still forecast to remain around the midpoint of the Reserve Bank’s inflation target, in other words about 4.5%, until early 2026. Which means that the already high prices of many goods and services are set to increase even further.

The cost of living is a major issue for all South Africans, but particularly for retirees, many of whom are living on pensions that are roughly half of their last salary, or less. In addition, the official rate of inflation will be different from how individuals experience it, depending on what goods and services they consume. Healthcare, for example, accounts for an increasing amount of monthly budgets as people age and increases in the cost of healthcare are typically much higher than CPI.

Against this background, making the right choice when purchasing a retirement income is essential. Life annuities are a good solution as they can provide good protection against inflation, without a decrease in income.

When selecting a life annuity, however, retirees are often faced with the risk-reward dilemma. Either they start with a lower income initially with annual increases that aim to protect them against inflation later in life, or they start with a higher initial income with fixed percentage increases annually, and possibly run the risk of their income being insufficient to cover essential expenses in their later years.

With-profit life annuities are still offering good value for money, despite the recent reduction in annuity rates. It gives good protection against expected inflation but generally a lower starting income in comparison to other types of life annuities.

In view of this, Just SA recently introduced an Advance feature for its with-profit annuity solution, Just Lifetime Income (JuLI). This innovative solution is designed to better suit clients’ retirement risk profiles.

In exchange for capping participation in future investment returns used in determining annual increases at 15% over our 6-year smoothing period, with JuLI Advance you can enjoy a higher starting income which never decreases and continues for life — no matter how long you live. It provides:

• Higher starting income – typically 5% to 15% higher
• Increases linked to investment returns that are capped at 15% over the 6-year smoothing period
• Good protection against expected inflation, depending on chosen level
• Same downside risk protection, income can never go down

JuLI Advance is available as a standalone life annuity or as lifetime income portfolio in a blended living annuity.