We all dream about that day when we can stop working and start seeing our lifelong savings work for us. And yet, we so often here stories about people not having enough money by the time that they retire. Some people don’t have enough because they simply did not save enough, but others don’t have enough because they have managed to spend or lose a substantial part of their retirement funds.

Clearly it is vital that you approach your financial plans for retirement with some degree of caution. It is very important that you consider all the investment products that you have available to you, like living annuities.

What are living annuities?

Essentially, a living annuity is an investment product that provides a monthly income from your retirement money. Whether you have a retirement fund or a provident fund , you will either have the option to move some, or all, of your savings into a living annuity. Unlike guaranteed annuities where your monthly income is fixed and spread out so that it covers your entire lifetime, living annuities offer the flexibility for you to choose your own monthly income once a year (of course, this income has to be within the legal boundaries of between 2.5% and 17.5%).

What we love about living annuities

When financial advisers make a case for living annuities they will normally point out the following benefits:

  • You can tailor how much monthly income you receive every year allowing you to receive enough money to pay for your child’s tertiary education for three years, and then you can choose to receive less money for the next couple of years
  • Instead of having no say regarding which investments are made with your money, as is the case with normal pension funds, a living annuity allows you to choose where your money is invested which puts you in the driver’s seat of your own financial destiny
  • In the event of your death, the remaining capital housed within the living annuity is automatically passed to your beneficiaries
  • Also, if you are not satisfied with the performance of your investment, you can move your money elsewhere

What we loath about living annuities

There are also some disadvantages to opting for a living annuity, which include:

  • There are no guarantees whatsoever, which means that you have no guarantee that you will continue to receive good income from your living annuity or that you will have enough funds to continue receiving money until your death
  • This lack of guarantee further means that there is no inflation protection that kicks in to help you live with the price hikes of everyday items
  • The cost of a living annuity can be high with the average cost being 2.8%
  • This is a more risky approach because, depending on where you invest these funds, you could lose some or all of it if the market takes a turn for the worst

Education is the first step toward empowerment. Understanding which options you have at your disposal and choosing the one that meets the most of your needs can only enhance your chances of living a financial stress free life once you are retired.