Combining retirement income options

The future of retirement income is not a single product – either guaranteed or living annuities – but a combination, according to Glacier by Sanlam.

Investment-linked living annuities (ILLAs) are the preferred choice of retirees as they can choose their income level, control their exposure to risk and nominate beneficiaries to inherit the proceeds.

But on average, retirees need to draw 1% to 2% more income than the guideline recommendations from their living annuities, putting them at some risk if they live to an old age, which could result in them not having enough to live on and leaving little, nothing – or even debt – to beneficiaries.

Rocco Carr, business development manager at Glacier by Sanlam, says Glacier believes that “retirement solutions will in future be a combination of products in which short-term capital preservation for inheritance [should both spouses pass away early in retirement] can be balanced with longer-term income protection against longevity, or the risk of outliving one’s money”.

The challenge isn’t the client with enough money but the average client who needs to draw more.

A solution is to combine living annuities and life annuities.

Carr says many people made the decision to go into living annuities at a time when guaranteed products gave a guaranteed return of around 5%, while living annuities were getting significantly higher returns.

“But things have changed, and we are looking at guarantees from a different perspective. In balanced funds, many living annuity investments are only getting 4% to 6% while guaranteed rates have picked up and are available with an inflation adjustment as well.”

With changes to regulations, a lump sum can be easily split into three or four possible products, ensuring retirees get the best of both worlds.

“Instead of buying a single living annuity, a client should buy more than one living annuity, and if need be, at some stage in the future, the client can switch one of them to a life annuity.”

Living annuities allow for income fluctuation, and a few years into retirement, clients can buy a guaranteed product at a better rate than they could earlier.

Things have changed, and we are looking at guarantees from a different perspective.

Rocco Carr Business development manager at Glacier by Sanlam