Difference between regular withdrawal and living annuity

[chrisc]

Alan Gray offer a living annuity, in which a specified sum is paid to the beneficiary each month. They also offer a regular withdrawal. As far as I can see, they have the same effect. When I asked AG what the difference was, I was given a convoluted explanation about the Regulation 28 Calculator. I obtained this program and found that my spread of investment was within the criteria of this calculator.

I was told that only a financial advisor would be able to properly explain the difference between the two options since it involves many lifestyle questions. Is this correct or was I just being fobbed off?

 

[rrh]

Legally AG is not permitted to act as an investment advisor, hence their suggestion that you speak to a third party ...

 

[Rkootknir]

Are you sure you got the terminology right? The two basic types of annuity in SA are:

1. Life (also called guaranteed or normal) annuities - You get regular payments as long as you are alive, regardless of whether you have any capital remaining in your pension account. The annuity provider takes all of the risk that you live longer than expected. Here are some of the different types of life annuities usually offered by providers:

- Level annuity: No future increases in the level of the payments;

- With profit annuities: The annuity provider invests the capital and provides increases (usually annual) to the level of payment. This increase can be zero when investments do badly but can never be negative;

- Inflation-linked: The payments increase in line with some measure of inflation, usually CPI; and

- Fixed increases: eg. 3% p.a. These are quite rare in SA

2. Living annuities (also called capital drawdown annuities) - You select regular payments that are effectively a drawdown on the capital in your pension account. There are legislated limits (minimum and maximum) to the level of drawdown that you can make each year. You take the risk that you live longer than expected and that the capital in your pension account runs out. You decide how to invest the capital.

Making a decision on which type to select is where you will almost certainly need the advice of a financial planner.

 

[vash87]

There are basically two types of annuities and they go by different terms. In summary the first type, will take your capital and pay you a defined amount for a defined period until your capital is exhausted. The other type.. you get to decide how much to draw by selecting a variable percentage. With this type of annuity you can invest a larger amount, and draw less than the interest you're earning so you never erode into the capital.. that way it doesnt matter if you live 10 or 100 years after you retire.