Don’t let headlines trump your retirement income

In President Trump’s first term in office, he was famous for firing off tweets to broadcast his thoughts and directives on issues. This helped to convince his followers that certain courses of action were necessary, thereby bypassing formal institutions in policy making.

Since then, he launched his own social media platform Truth Social to achieve the same end, frequently posting messages that are picked up by traditional media.

Recently he has been using the media to announce tariffs on other countries, essentially making good on campaign promises he made while running for office. Tariffs directly affect the price of imported goods, indirectly protecting domestic industries, which can alter trade dynamics and international relations. Trump’s decisions are often a moving target and news outlets the world over are continually reporting on these announcements, which causes uncertainty.

And if there is one thing that investment markets do not tolerate, it is uncertainty. It results in volatility, which can be a problem for pensioners.

At retirement, you are required to use at least two thirds of your accumulated retirement savings in a pension fund or retirement annuity to buy an income that should be sustainable for the rest of your life. The two main options are a living annuity and a guaranteed (or life) annuity. With a living annuity, you can withdraw between 2.5% and 17.5% of your capital each year as a monthly income.

However, studies have shown that drawing down anything more than about 4% of your retirement capital when you retire can result in you running out of money in your later years – just when you need it the most.

Unfortunately, two-thirds of South African retirees who invested their savings in living annuities are drawing down from their capital above the safe drawdown rate, which means that even temporary market volatility can reduce the time before they run out of sufficient capital to fund the level of income they require.

Riding out market fluctuations can result in capital losses – especially for retirees who need to draw an income regularly – so it is crucial for pensioners to secure their financial future and lock in peace of mind now.

There’s an upside

Tariffs also impact inflationary expectations which, in turn, cause long-term interest rates to rise; and higher interest rates mean higher annuity rates for pensioners investing in guaranteed life annuities. This is especially true for with-profit life annuities, which allow you to keep market exposure while giving you a guaranteed income for life.

Only in hindsight will investors be truly able to evaluate the impact of tariffs on markets. But this is of little help to pensioners who need stable incomes in their later years. What we can say for sure is that equity markets are in for a bumpy ride in 2025.

A  solution to such volatility is a life annuity that provides an income for life that never decreases, ensuring stability and security in unpredictable market conditions. This takes away both market risk  - the risk that your investments don’t produce the returns you need - and longevity risk - the risk of living longer than you expected.