Living annuity vs life annuity
Living Annuity vs Life Annuity
Practical retirement guidance for every stage of the journey.
When you retire, most of your retirement savings must be used to buy an income-producing annuity. In South Africa this generally means choosing between a living annuity — investment-linked and flexible — and a life annuity, which offers income certainty from an insurer in exchange for reduced flexibility. Neither is universally better: the right choice depends on your health, dependants, other income sources and comfort with investment risk.
What is a living annuity?
Investment-linked, flexible income
Investment-linked income
Your capital stays invested and your income is drawn from it.
Drawdown choice
You select an annual drawdown rate within limits set by current rules.
Market exposure
The value of your capital moves with the underlying investments.
Remaining capital
Any capital left when you die is generally paid to your beneficiaries.
Longevity risk
You carry the risk of the capital not lasting as long as you do.
What is a life annuity?
Insurer-backed income certainty
Insurer-provided income
An insurer pays you a regular income for as long as you live.
Guarantee features
Income is guaranteed by the insurer under the terms selected at purchase.
Inflation options
Some life annuities offer inflation-linked increases, usually at a lower starting income.
Spouse or guarantee-period options
You can often add continued income for a spouse or a minimum payment period.
Reduced access to capital
Once purchased, the underlying capital is generally no longer accessible to you.
Side-by-side comparison
Weighing flexibility against certainty
| Feature | Living annuity | Life annuity |
|---|---|---|
| Income certainty | Income varies with your chosen drawdown and investment performance. | Income is guaranteed by the insurer under the selected terms. |
| Flexibility | You can adjust your drawdown rate and fund choice within limits. | Terms are generally fixed once the annuity is purchased. |
| Investment risk | You carry the market risk on the underlying investments. | The insurer carries the investment risk. |
| Longevity risk | You carry the risk of outliving your capital. | The insurer carries the longevity risk. |
| Estate value | Remaining capital is generally payable to beneficiaries. | Typically no residual value, unless a guarantee period or spouse's benefit applies. |
| Inflation protection | Depends on investment performance and your drawdown decisions. | Available as an optional feature, usually for a lower starting income. |
| Ability to change | Fund choice and drawdown can usually be reviewed annually. | Generally locked in once purchased. |
| Fees and terms | Ongoing platform, fund and advice fees apply. | Costs are built into the insurer's quoted income rate. |
Hybrid retirement-income strategies
Some retirees use more than one solution
A living annuity and a life annuity are not always an either-or decision. Each solves a different retirement-income need.
Some retirees divide their retirement capital, using a life annuity to cover essential expenses with guaranteed income and a living annuity for flexibility, estate value and potential growth on the remainder.
Whether a hybrid approach is appropriate depends on your income needs, other assets, dependants, health and tolerance for market uncertainty. The allocation between the two should be modelled against your full retirement plan.
Key consideration: decide which expenses need certainty and which part of your income can remain exposed to investment markets.
Choosing an appropriate drawdown
Sustainability matters more than the starting number
Within a living annuity, you choose an annual drawdown rate within limits set by current regulation. A higher drawdown increases your income today but raises the risk of depleting capital sooner.
The risk is greatest when withdrawals remain high through weaker market periods, because more investments must be sold while values are lower and less capital remains available for a recovery.
There is no single rate that suits everyone. A sustainable drawdown depends on your age, spending needs, other income, health, investment mix and how long your capital may need to last.
Review discipline: reassess the income rate and underlying investments at least annually, and after material changes in markets or your circumstances.
Risks of drawing too much
How withdrawals, returns, fees and longevity interact
Drawing more from a living annuity than the underlying investments can sustainably support gradually erodes the capital that generates future income. The effect compounds over time: a higher drawdown combined with a period of weaker returns, ongoing fees and a longer-than-expected retirement can shorten how long an income lasts. The scenarios are illustrative only—not a recommendation or projection for any individual.
These categories are not specific percentage recommendations. A suitable drawdown rate should be modelled and reviewed with an adviser based on your circumstances.
Questions to ask before deciding
What to consider before choosing
Health and longevity
How long might your retirement income realistically need to last?
Dependants
Who relies on your income, and for how long?
Essential expenses
What must be covered no matter how markets perform?
Other income sources
Do you have other assets or income to draw on?
Estate goals
How important is it to leave remaining capital to beneficiaries?
Risk tolerance & flexibility
How comfortable are you with market movements, and how much flexibility do you need?
Mbalwa's retirement-income process
A structured comparison of your options
Assess income needs
Understanding your expenses, dependants and other income sources.
Model alternative outcomes
Comparing how a living annuity and a life annuity might play out for you.
Compare product structures
Reviewing fees, flexibility and guarantee features across suitable providers.
Implement the selected strategy
Putting the agreed income structure in place.
Review income annually
Adjusting the drawdown or strategy as circumstances change.
Frequently asked questions
Questions about living and life annuities
A living annuity is investment-linked, letting you choose a drawdown rate within regulatory limits while your capital remains invested. A life annuity pays a regular income from an insurer for as long as you live, in exchange for reduced access to the underlying capital.
Yes. Because the underlying investments remain exposed to markets, values can fall as well as rise, which can affect how long your income lasts.
Yes, if withdrawals are set too high relative to investment growth over a long enough period, a living annuity's capital can be depleted. This is why drawdown rates should be reviewed regularly.
A life annuity provides an income guaranteed by the insurer for as long as you live, based on the terms selected at purchase, though this generally comes with reduced flexibility and less access to the underlying capital.
In many cases you can use remaining living annuity capital to purchase a life annuity later, subject to the product rules in force at the time. This should be discussed with an adviser as part of an annual review.
With a living annuity, any remaining capital is generally paid to your nominated beneficiaries. With a life annuity, this depends on the options selected at purchase, such as a guarantee period or a spouse's continuation benefit.
Yes. Some retirees split their retirement capital between a living annuity and a life annuity to balance flexibility with income certainty, where this suits their circumstances.
At least annually, and sooner after a significant market movement, health change or shift in your expenses, so the drawdown rate can be adjusted to remain sustainable.
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Written and reviewed by Wenzile Mthiyane, CFP®, Key Individual, Mbalwa Investment Services (view profile) · FSP 55090 · Last reviewed 1 July 2026