Money …
LOOKING AFTER YOUR LIVING ANNUITY We spoke to Christo Lineveldt of Coronation Fund Managers about how best to preserve value in a
also leave any unused assets to your chosen beneficiaries. However, choosing the living
So, what would a prudent plan look like? The rule of thumb is that a
annuity as your retirement
low initial drawdown rate of 5%
income vehicle comes with the
or less will allow the underlying
most challenging of investor
investment portfolio to grow
pproaching your
needs: simultaneously investing
and sustain its ability to protect
retirement date comes
for both immediate retirement
the purchasing power of your
with anticipating the
income and long-term growth.
retirement income over time. It’s
life you plan to live beyond
The key challenge is to ensure
worth noting that the less you
employment. However, this
a sustainable standard of living
draw early on in retirement, the
process also forces many investors
by balancing the needs of today
more you enable your capital to
to make some of the most critical
with those of the future. This is
grow, and the better it will be able
financial decisions of their
best achieved by investing in
to sustain you further down the
lifetime. Having saved towards a
an appropriately constructed
line. To grow your income so that
retirement nest egg over multiple
portfolio and selecting a
you keep up with inflation over
decades, for many it will be the
conservative income drawdown
the course of 25 to 30 years, your
single largest pot of capital with
rate early in retirement. Drawing
capital needs to grow, too.
which they would need to make
too high an income at the start of
Given that you still have a
a decision – and one that will
your retirement and/or expecting
multi-decade time horizon over
ultimately determine their lifestyle
too high a rate of return is as
which you need inflation-beating
for the rest of their life.
dangerous as investing too
returns, you require a diversified
conservatively or too aggressively.
portfolio that has meaningful
living annuity.
A
Many investors choose to transfer their retirement
Just how sustainable
exposure to growth assets such as
savings to a living
it is to draw a certain
equities and property. Investors
annuity (as opposed to a
level of retirement
early in retirement should seek
guaranteed annuity) as it
income depends on
funds that allow at least half of the
comes with various pros
how well you manage
portfolio to invest in growth assets.
– not least that you can decide on how much you’d like to draw as your income from year to year (within the legally defined
the fine balance between the return earned on the capital you have invested in the living annuity, and how fast you withdraw your income.
At Coronation, their flagship living annuity portfolio, the Coronation Capital Plus Fund, will have approximately 60% exposure to growth assets on average. But this is just half of the
limits of 2.5% and
equation. Your living annuity’s
17.5% per year,
underlying investment fund also
of course). You can
needs a strong focus on risk and
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SILVER DIGEST //AUTUMN 2019
