When reaching retirement (resigning from one’s retirement fund) one should have a pretty good idea of the income needs that one will require at least for the next few years of retirement. Most retirees opt for the living annuity retirement product (ILLA) where one has relatively freedom of choice of selecting your own investment portfolio and income levels plus the potential benefit of preserving and growing your retirement capital over time (conventional life annuities pay a guaranteed income stream until death but with no return of capital).
Living annuities allow retirees to withdraw between a minimum rate of 2.5% and a maximum rate of 17.5% of the capital value per annum. Obviously, the income level chosen should be realistic and linked to your overall capital available to generate an income stream. The challenge of a living annuity, however, is to construct one’s investment portfolio in not only meeting current income requirements, but also rising income needs in the future. The initial retirement income amount (or initial withdrawal rate) is paramount to the sustainability of one’s retirement plan over the long term.