Adding cash or cash-like investments to a living annuity to secure your income could turn out to be a poor decision, experts warn. Asset managers caution that such a move could compromise the kind of investment growth one needs for retirement. Increasing longevity means that retirees need to plan for 25 to 30 years' income. To ensure that one's capital grows sufficiently, living annuitants need exposure to asset classes that beat the rate of inflation, such as equities and listed property. However, these asset classes have the most volatility, or variability of returns. Drawing a regular income from an investment with volatility introduces what is known as sequence-of-returns risk. In its latest Corolab publication, Coronation explains that if your capital declines soon after you start drawing an income, the income withdrawn will represent a larger portion of your assets than if the capital had grown. In future years, you will need to draw a larger portion of the remaining capital t...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.