Mastering Living Annuities: Strategies to Secure Your Retirement Income

Retirement income planning requires both discipline and returns.

In a recent webinar, investment consultant Brett MacKay and Chris Eddy, head of investments at 10X Investments, joined host Simon Brown to discuss strategies retirees can adopt to extend their savings, minimize expenses, and make informed, consistent decisions.

Focus on reducing fees: Control what you can

MacKay urged investors to start with a simple but effective step – cutting costs.

“Reducing expenses means more funds remain available for you or can be reinvested to enhance your capital.”

The Effective Annual Cost (EAC) outlines all layers of fees, including advice, administration, and performance. By acquiring this document and evaluating various providers, retirees can greatly improve their long-term income potential.

Adopt a long-term perspective

Eddy reminded retirees that, at age 65, their investment horizon can extend 30 years or longer. Avoiding volatility entirely may incur significant costs over time.

“Long-term gains come with short-term volatility. Recognize the trade-off and manage your emotional responses.”

Being overly defensive can lead to capital erosion from inflation and withdrawals. A balanced portfolio of equities and income-generating assets can help ensure that retirees’ funds endure over time.

Practice disciplined withdrawals

A sustainable retirement income relies on equilibrium. McKay noted that the ideal withdrawal rate should be between 5%-6% each year.

“Your fees, withdrawals, and inflation must always be less than your fund’s returns – this is essential for preserving your capital.”

Living annuities offer flexibility, allowing income to be withdrawn monthly, quarterly, or annually—though they need to be reviewed each year according to current regulations.

Manage your expectations

The last five years have delivered exceptional real returns, but the next five may not follow suit. Eddy encouraged investors to adjust their expectations.

“The past five years have been outstanding, but that’s not the typical scenario. The next five might yield CPI plus 2 or 3 [%].”

With global equity valuations high and local inflation at approximately 3%, aiming for consistent rather than extraordinary returns is more feasible.

Hybrid solutions for enhanced security

Guaranteed annuities still hold significant importance—especially for fixed costs such as medical aid. McKay suggested combining them with a living annuity for increased flexibility and estate benefits.

“You can transition from a living annuity to a guaranteed one—but not the other way around.”

Gradually shifting towards secured options can balance stability with growth opportunities.

Diversification over timing the market

Eddy emphasized that effective asset allocation is key, rather than trying to time the market.

“It’s about time in the market, not trying to time it, while ensuring you have the right asset mix.”

He also mentioned that local bonds currently present a rare opportunity, with yields around inflation plus 5%—a solid option for cautious real returns.

Stay calm and invested

Emotional reactions pose the greatest risk to retirement wealth. McKay shared examples of clients whose rash decisions during downturns led them to miss significant recoveries.

“It’s about the length of time you are in the market, not the timing,” he emphasized.

Having a financial advisor can assist retirees in maintaining perspective during times of volatility.

Be aware of tax and transfer regulations

Growth within a living annuity is tax-free, and transfers between providers—referred to as Section 50 transfers—do not interrupt income payments.

Eddy pointed out, “All capital growth in a living annuity is tax-exempt—a considerable advantage over other investment options.”

Simplicity and transparency should guide your decisions

Both experts concluded by highlighting the importance of focusing on what truly matters.

MacKay noted: “An acceptable EAC should be under 1%. Lower fees mean you retain more of your actual returns.”

Eddy added: “If your real return is at 3% and your fees are also 3%, you’ve effectively gained nothing.”

Success in retirement planning isn’t just about chasing market fluctuations. It’s about managing costs, diversifying thoughtfully, controlling emotions, and staying invested long enough to let compounding create growth—rather than chasing speculation.

Presented by 10X Investments.

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