Research Articles, The Short Series on Retirement Planning

Retirement income drawdown strategies: Evaluating different drawdown rules

You have retired from your retirement fund and will not earn any formal employment income in the future, i.e. you’re dependent on the income from your retirement fund to meet your current and future financial needs. You’ve elected to transfer the proceeds from your retirement fund to a living annuity (ILLA) product.

Initially, you had to make two important choices, namely the portfolio selection (investment fund choices) and the income level required from your living annuity – typically between 2.5% and 17.5% of the capital value.

 Twelve months later the product provider (administrator of the living annuity product) will contact you to revise your income needs for the forthcoming year. Do you simply base that income decision on what it was now plus an allowance for an increase in living expenses, say, in line with the prevailing inflation rate, or do you consider how your investment portfolio fared over the past twelve months and therefore adjust your income needs accordingly, or simply, what you think you’ll need going forward, irrespective of how your portfolio performed recently and overall inflation trends?

 This article focusses on the above type of annuity income choices that a living annuity retiree must make during the annual income review stage, and may have a profound effect on the long-term sustainability of your retirement plan.

Source: Drawdown_rules