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High Living Annuity Drawdown Rates
South Africa faces a retirement income ticking time-bomb. It has been reported that more than 40% of retirees who have purchased a living annuity are drawing more than 15% of their capital each year. This is not sustainable in the long term.
In order to avoid using capital to fund your income you need to earn a return in any year (net of fees) that exceeds your annual percentage income draw.
Therefore if you draw 10% and earn 8% your capital will drop by approximately 2%. In the following year, in order to maintain your Rand amount of income you would need to increase your percentage income draw – your capital has decreased so the same Rand amount of income would be a higher percentage of the lower capital amount. This can become a slippery slope as you attempt to maintain your Rand income with an ever dwindling capital amount.
A living annuity is unique in that if you purchase one of these policies today you cannot, by law, annually draw more than 17.5% of your capital as income. Therefore once you reach this maximum percentage level your Rand amount of income will decrease each year into the future.
As long as you stay in the living annuity product you will continue to be exposed to the investment risk and longevity risks associated with reaching the 17.5% drawdown rate.
Low Income Replacement Ratio
Your retirement savings may not be sufficient for you to receive the same income as you did prior to your retirement. This can become extremely serious if the income change is substantial. It can be difficult to adjust your budget within the month or period after you retire in order to ensure that you have enough money to fund your lifestyle.
Introducing Total Transition Technology
In many cases, the high drawdown rate you may have been exercising for several years or your pre-retirement income may not be sustainable. This means that in order to ensure a long term sustainable income via a Paramount Guaranteed Annuity, your income would drop immediately.
The Paramount Life Transition Benefit™ is designed to assist with the transition from a high drawing living annuity or high pre-retirement income to a sustainable Paramount Life Guaranteed Annuity income.
You have the option of deciding on:
§ the period of time over which your current income will adjust to your sustainable long term income
§ the reduction per annum.
This means that you are provided with a Transition Boost™ as you adjust to the long term Guaranteed Annuity income, while avoiding the pitfalls of an exponentially decreasing living annuity income.
This benefit option is available with the purchase of any Paramount Life Guaranteed Annuity.