How to choose the right annuity for a secure retirement income

Retirement from a fund marks the shift from building capital to drawing an income from it. Choosing the most suitable annuity for your needs can be challenging, with a range of variables to consider before making a decision which including the following:

- SHERRY TAPPFUMA

Cash withdrawal

At retirement, you may commute up to one-third of your retirement capital as a lump sum, and this amount will be taxed according to the retirement lump sum benefits table, with the first R550 000 being tax-free. Thereafter, you will be taxed on a sliding scale between 18% and 36%. Your decision to take a cash commutation will depend on several factors, including any previous withdrawals made, whether you need income to funds for immediate expenses or debt, and whether you have sufficient discretionary savings to provide liquidity in retirement.

Leaving a legacy

If leaving a financial legacy is important to you, a living annuity may be a suitable choice. This is because a life annuity, being a life insurance policy, pays a guaranteed monthly pension until the day you passing, at which point the income ceases and the policy terminates. On the other hand, a living annuity is an investment held in the name of the annuitant and, at death, the remaining capital can be bequeathed to one's beneficiaries.

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