Living Annuity vs. Guaranteed Annuity: Making the Right Retirement Choice

If you’re not nearing your 60s, retirement may seem like a distant reality. However, the decisions you make today will determine the quality of your financial future. One of the most important choices is deciding between a living annuity and a guaranteed annuity—two options that shape how you receive income during retirement.

Both annuity types come with distinct advantages and limitations, affecting not just your finances but also your lifestyle and long-term security. Here’s what you need to know before making this critical decision.

What is a Guaranteed Annuity?

A guaranteed annuity, also known as a life annuity, provides a fixed and stable income for life. This is purchased as a lump sum from an insurance provider, and the company assumes all investment risks.

Pros of a Guaranteed Annuity:

Predictable, steady income regardless of market performance
No investment management required
Protects against longevity risk (outliving your savings)

Cons of a Guaranteed Annuity:

No access to capital once the annuity starts
Inflation can reduce real income value over time (unless an inflation-linked annuity is chosen)
No inheritance for heirs unless specific benefits are added (which lower payouts)

What is a Living Annuity?

A living annuity offers more control over your investment, allowing you to choose how funds are managed and withdrawn. However, this also means you bear the investment risk.

Pros of a Living Annuity:

Flexibility to adjust income withdrawals (within regulatory limits)
The potential for capital growth if investments perform well
The remaining balance can be inherited by beneficiaries

Cons of a Living Annuity:

Market fluctuations can impact income stability
Poor investment performance could deplete savings
Requires careful financial management to ensure longevity

Key Considerations When Choosing an Annuity

1. Financial Security vs. Flexibility

• If you prefer a stable, guaranteed income, a guaranteed annuity may be the best option.
• If you want more control and the potential for capital growth, a living annuity offers flexibility.

2. Inflation Protection

• A guaranteed annuity provides fixed payments, which may lose value over time.
• A living annuity allows you to invest in assets that could outpace inflation.

3. Legacy Planning

• A guaranteed annuity does not pass capital to heirs.
• A living annuity allows beneficiaries to inherit the remaining funds.

4. Investment Risk Tolerance

• Guaranteed annuities eliminate investment risk.
• Living annuities require active management to avoid running out of funds.

Can You Combine Both Annuities?

Yes! Some retirees split their retirement savings between a living annuity and a guaranteed annuity. This hybrid approach allows them to secure a steady income while keeping part of their capital invested for growth and inheritance.

Choosing the Right Annuity for You

Deciding between a living annuity and a guaranteed annuity is one of the most important financial choices for retirement. Each option has its strengths and trade-offs, so it’s essential to consider your lifestyle, risk tolerance, and long-term goals.

Pro Tip: Consult a financial advisor to create a balanced retirement strategy that ensures both security and financial growth.

Would you like to see how much income you can expect from a living annuity? Use our annuity calculator to get a personalised estimate.

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