Living Annuity Masterclass: Strategies to Sustain Your Retirement Income
Effective retirement income planning hinges as much on discipline as it does on investment returns.
In a recent webinar, investment consultant Brett MacKay and Chris Eddy, head of investments at 10X Investments, joined host Simon Brown to discuss how retirees can extend their savings, reduce costs, and make steadier financial decisions.
Control Costs to Boost Income
MacKay emphasized that one of the simplest ways to improve outcomes is by cutting fees.
“If you can reduce your costs, that’s more that stays in your back pocket or goes back into your fund to grow your capital,” he said.
Reviewing the Effective Annual Cost (EAC)—which includes all advice, administration, and performance fees—and comparing providers can significantly enhance long-term income potential.
Adopt a Long-Term Perspective
Eddy reminded retirees that at age 65, their investment horizon could still span 30 years or more. Being overly defensive can be costly over time.
“Short-term volatility is the price you pay for long-term returns. Understand the trade-off you’re making and manage your emotions accordingly.”
An excessively cautious approach risks letting inflation and withdrawals erode capital. A balanced mix of equities and income-generating assets can help portfolios endure.
Master Your Withdrawal Rate
Sustaining retirement income is a matter of balance. MacKay identified the ‘sweet spot’ for annual drawdowns at approximately 5% to 6%.
“Your fees, drawdowns, and inflation should always be less than your fund’s return – that’s the golden rule to never running out of capital,” he stated.
While living annuities offer payment flexibility, regulations require an annual review of the withdrawal rate.
Reset Return Expectations
Eddy cautioned that the exceptional real returns of the past five years are unlikely to be repeated.
“The last five years have been extraordinary, but that’s not the new normal. The next five could easily be CPI plus 2 or 3 [%],” he noted.
With high global equity valuations and local inflation near 3%, steady, moderate returns are a more realistic goal.
Consider Hybrid Annuity Solutions
Guaranteed annuities remain valuable for covering fixed expenses like medical aid. MacKay suggested combining them with a living annuity for both flexibility and legacy benefits.
“You can always move from a living annuity to a guaranteed one – but never the other way around.”
Gradually incorporating guarantees over time can balance security with growth potential.
Focus on Diversification, Not Timing
Eddy stressed that asset allocation, not market timing, is the key to success.
“It’s not about timing the market – it’s about time in the market and getting the mix right,” he said.
He highlighted that local bonds currently present strong value, offering yields around inflation plus 5% for low-risk real returns.
Stay Invested and Avoid Emotional Decisions
Emotional reactions pose the greatest threat to retirement wealth. MacKay recalled clients who switched out during market downturns and missed subsequent recoveries.
“It’s about the time you spend in the market, not timing it,” he reiterated.
Working with a financial advisor can help maintain objectivity during volatile periods.
Understand the Tax Advantages
Growth within a living annuity is tax-free, and transfers between providers—known as Section 50 transfers—do not interrupt income payments.
“All the growth on your capital within a living annuity is tax-exempt – that’s a huge advantage over other investment vehicles,” Eddy explained.
Prioritize Simplicity and Low Costs
Both experts concluded by urging a focus on the fundamentals.
MacKay advised, “A reasonable EAC should be below 1%. The less you pay in fees, the more of your real return stays with you.”
Eddy added, “If your real return is 3% and you’re paying 3% in fees, you’ve effectively given away 100% of your growth.”
A successful retirement strategy isn’t about chasing performance. It’s built on controlling costs, diversifying wisely, managing emotions, and allowing compounding to work over the long term.
Brought to you by 10X Investments.
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