When you retire with a fund value above the de minimis threshold, at least two-thirds of it must be used to purchase an annuity — a product that pays you a regular income. You get to choose between two fundamentally different types, and that choice is largely irreversible once made.
Guaranteed (life) annuity: income for life, no market risk to you
A guaranteed annuity converts your capital into a fixed (or inflation-linked, depending on the option chosen) income paid for the rest of your life, no matter how long you live. The insurer takes on the investment and longevity risk — if you live to 100, you're still paid, even if the underlying capital would technically have run out. In exchange for that certainty, you generally can't change the income later, and there's typically nothing left over for your estate once you pass away, unless you selected a guarantee period or a spouse's continuation option upfront.
Living annuity: you control it, but you carry the risk
A living annuity keeps your capital invested, and you draw down an income from it each year — chosen and adjustable annually, within a set range of 2.5% to 17.5% of the annuity's value per year. Whatever remains when you pass away goes to your beneficiaries, which is a meaningful difference from a guaranteed annuity. The trade-off is that you carry the investment risk and the longevity risk yourself: draw too much, or get poor investment returns, and the capital can run out while you're still alive.
- Living annuity commutation threshold: R150,000. If a living annuity's value falls below this amount, the full remaining balance may be commuted (taken as cash) instead of continuing as an annuity.
Why the drawdown range itself matters
The 2.5%–17.5% band isn't just a technicality — it's the mechanism that can quietly run a living annuity dry. Drawing consistently near the top of that range, especially in a period of poor investment returns, can deplete the capital faster than most people expect. Drawing near the bottom preserves capital longer but may not provide enough income to live on. This is the central tension of a living annuity, and it's the reason many retirees choose to blend the two annuity types rather than picking one exclusively.
There's no universally correct answer
The right choice depends on your health, other income sources, whether leaving money to beneficiaries matters to you, and your own comfort with managing investment risk in retirement. This is a decision worth getting professional advice on specifically — it's one of the largest, least reversible financial decisions most people make.
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