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Designing Income That Lasts: Solving the Retirement Income Problem
Most South African retirement plans are built to reach retirement, not survive it. A calm guide to drawdown rates, annuity choices, and designing income that lasts 25 to 30 years.
AS Brokers insight
Designing income that lasts: solving the retirement income problem
For South Africans approaching or living in retirement, the central question is no longer "how much have I saved?" but "how long will it last, and how steady will the income feel?" This is the retirement income problem - and it deserves a calm, structured answer.
Self-funding retirement looks different in 2026 than it did a generation ago. People are living longer, medical costs are rising faster than headline inflation, and traditional pensions have largely been replaced by personal retirement savings. The result is that the responsibility for converting a lump sum into a lifetime income now sits with the individual.
That is a significant shift. It also means small decisions - your drawdown rate, your investment mix, your tax structure - compound into very different outcomes over a 20 or 30 year retirement.
The four risks every retiree faces
Sequence risk is the danger of poor market returns early in retirement, while you are drawing income. Inflation risk erodes purchasing power quietly over decades.
Longevity risk is the chance of outliving your capital. Behavioural risk is the cost of selling at the wrong moment because the plan was never stress-tested.
Living annuity or life annuity?
In South Africa, the two main vehicles for drawing a retirement income are the living annuity and the life annuity. Each solves a different part of the problem.
A living annuity keeps your capital invested and lets you choose a drawdown rate between 2.5% and 17.5% each year. It offers flexibility, growth potential, and a residual amount that can be passed to beneficiaries. The trade-off is that you carry the investment and longevity risk.
A life annuity pays a guaranteed income for as long as you live, with optional inflation protection and spouse cover. It removes longevity risk, but the capital is converted to an income stream and is no longer available as a lump sum. For many retirees, a blend of both - sometimes called a hybrid solution - delivers the best of each structure.
"The most expensive mistake in retirement is rarely a bad investment. It is drawing too much, too early, from a portfolio that was never structured for the journey ahead."
Run your own numbers
Before any product conversation, it helps to see how long your capital is likely to last under different drawdown rates, return assumptions, and inflation scenarios. Use the calculator below to model your starting point. Treat the result as a conversation prompt, not a final answer - real plans factor in tax, medical costs, and lifestyle stages.
The drawdown rate that quietly decides everything
South African research consistently shows that drawdown rates above 5% per year carry meaningful risk of capital depletion before age 90, particularly in the first decade of retirement. Rates of 4% or lower, paired with a properly diversified portfolio, give your capital a far better chance of lasting the distance.
The temptation is always to start higher. The discipline is to start lower, build a small buffer, and review annually. A formal review with an adviser - rather than a reaction to a quarterly statement - is what keeps the plan on track.
AS Brokers insight
Structuring capital across three time horizons
A practical approach many advisers use is to separate retirement capital by when it will be needed:
- Years 1 to 2: stable, accessible capital for near-term income and emergencies.
- Years 3 to 7: a moderate-risk allocation that balances income and modest growth.
- Years 8 and beyond: growth assets that have time to recover from market cycles and protect against long-term inflation.
This structure does not eliminate market volatility. It changes the relationship between volatility and the income you actually draw.
Tax, estate, and the things people forget
Income from a living annuity is taxed at your marginal rate, but the underlying capital grows free of dividends tax, interest withholding tax, and CGT. That makes the structure more tax-efficient than many investors realise - provided the drawdown is set with tax in mind.
Beneficiary nominations on retirement products bypass the estate and are paid out quickly. Wills, voluntary investments, and discretionary trusts each play a different role. A coherent plan considers all of them together rather than in isolation.
Common questions
What is a "safe" drawdown rate in South Africa?
There is no universal number, but most local research points to a starting drawdown of around 4% to 4.5% for a retiree with a balanced portfolio and a 25 to 30 year horizon. Younger retirees should consider starting lower; those with shorter horizons or guaranteed income elsewhere may have more flexibility. The right rate is the one that survives stress-testing, not the one that feels comfortable today.
Should I move to cash when markets fall?
Almost never as a reaction. Moving to cash after a fall locks in losses and removes the assets most likely to recover. A properly structured plan already holds enough near-term capital in stable assets to ride out volatility without selling growth assets at the wrong time. If the temptation feels strong, that is the signal to speak to an adviser, not to make the switch.
Can I change my living annuity drawdown each year?
Yes. South African living annuities allow you to adjust the drawdown rate annually, between 2.5% and 17.5%, on the anniversary date of the product. Many retirees use this flexibility to take less when markets have fallen and to top up in stronger years - but the decision should be part of a documented review, not an instinctive response.
When should I review my retirement plan?
At minimum, once a year on the anniversary of your product. Sooner if there is a significant life event - a change in health, a major expense, the loss of a spouse, or a meaningful change in markets. A review is not a product sale. It is a structured check that the plan still matches the life it was built for.
A short checklist before your next review
- Confirm your current drawdown rate and whether it is still sustainable.
- Check that your near-term income capital is held in suitably stable assets.
- Review beneficiary nominations on every retirement product and policy.
- Compare actual spending to your original retirement budget.
- Book a structured review with an AS Brokers adviser before making any product changes.
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Note: Market values can rise or fall, and past performance is not a guarantee of future outcomes.