Blending diverse solutions for the optimal retirement outcome

Many people think that diversification in retirement is limited to the choices between guarantees (in the form of life annuities) and living annuities. This boils down to an adviser presenting a quote or two at retirement, with a choice of one of these options.

- By Rocco Carr, Business Development Manager at Glacier by Sanlam

If a living annuity is selected, the advantages of the product, such as capital inheritance and income flexibility, as well as the diversification of investment among funds, geographical regions and asset classes would be what the client values, and the proposal to the client would include the selection of funds, the types of assets to invest in and the ideal split between local and offshore funds - of course within the limits of risk the client is prepared to endure.

If the client highly values financial certainty and wants a guaranteed income for life, a life annuity would be preferred, and its proposal would focus on the rate, which determines the income, the income escalation and whether a capital guarantee in the form of a life policy should also be included.

How market conditions shape decisions

Market conditions shape clients' decisions. During periods where markets struggle, guarantees in the form of life annuities are often favoured, as clients prefer the safety, believing that markets will stay that way. Uncertainty in the markets also lead to elevated bond yields, which in turn translate to higher guaranteed rates and therefore a higher guaranteed income from a life annuity.