Question:
I have money in a living annuity fund which doesn't work for me at the moment. I want to change to something else, because my monthly income is only R5 000. I should be very happy if you could give me some advice. Thank you Marius.
Answer:
Marius,
Your options are quite limited. With a living annuity, you must draw down at least 2.5% but no more than 17.5% of your residual capital (as at the Policy Anniversary date). So if R5 000 is less than 17.5% of your residual capital at anniversary date you can increase your draw-down rate. However, in a living annuity you always run the risk of depleting your capital and outliving your savings if your draw-down rate is too high. If you increase your draw-down rate, this risk increases. If you are already drawing down at the maximum level, then you are reliant on positive investment returns (increasing your Residual Capital) to secure a higher income. You may have to assume more investment risk, to achieve this (i.e increase your equity allocation) but this could also work against you (i.e the investment return could be negative), so you would need to think about this very carefully.
Your other options are to transfer to another provider or to convert your living annuity to a conventional annuity. It is very unlikely that either of these two moves would improve your monthly income however.
