The most important consideration and priority when a retiree makes decisions around approved income products for the compulsory portion of their savings is to ensure a sustainable income for themselves.
This should rank above the wish to leave a legacy, argues Fareeya Adam, CEO of Structured Products and Annuities at Momentum Wealth. “People usually want to leave a legacy, but the most important point is: do I have enough income to sustain my standard of living for as long as I live?”
Ultimately, retirees must remember that their unique personal circumstances, including their health, matter. And while living annuities provide flexibility, they also demand engagement and ongoing decision-making that could add unnecessary pressure during retirement.
According to Adam, guarantee terms remain a very useful way to put a minimum on the total payout from a life annuity. “A guaranteed term is always the way to go, especially if it is added at a younger retirement age, because the cost is very small at around 60 or 65,” she says.
Flexibility vs certainty: a false dilemma?
Many retirees feel forced to choose between investment flexibility, offered by living annuities, and income certainty, offered by life annuities. Adam calls this an example of the Sucker’s Choice – a concept where you have to choose, despite not liking either option. It inevitably leaves the person feeling wronged.
She advocates for a different type of flexibility than that which comes with choosing a living annuity. A hybrid option, such as the one provided by Momentum, allows both new and existing clients to switch part of their living annuity capital into a life annuity later in retirement. This offers peace of mind and postpones the final decision.
Advice, tools, and the role of regulation
“It is a lot to navigate on your own because there are so many factors to consider. Which one you choose is a function of your risk tolerance, your ability to stay invested, your view on your expected lifespan, etc,” says Adam. According to her, clients must be empowered to make informed decisions. And, this is where the value of financial advice is important.
Everyone’s financial journey is unique. Momentum’s approach, captured in the phrase “Advice meets your context,” emphasises that financial planning must be personal. Your needs, dreams, and goals are different from anyone else’s, and that’s why financial advice should be tailored to your specific situation.
In the last couple of decades, South African regulators have placed the customer and their fair treatment squarely in the spotlight, developing frameworks such as Treating Customers Fairly (TCF) and the Conduct of Financial Institutions (Cofi) legislation. The goal is to ultimately transform TCF with the advent of Cofi, helping the Financial Services Conduct Authority to entrench these principles in service providers’ conduct.
Adam believes Momentum’s approach aligns well with fairness principles.
Through digital simulations and comparison tools, advisers can show clients the long-term impact of choosing a level vs an inflation-linked income, in real and nominal terms. Adam emphasises: “We are taking the responsibility to make sure that clients see these types of metrics so that they understand the consequences of different choices.”
Don’t forget the voluntary options
Most articles around retirement decisions focus on compulsory annuities, but voluntary annuities also serve specific needs.
For example, states Adam, for certain types of clients, voluntary term-certain or life annuities allow them to draw a guaranteed income for a set period, often used to fund a child’s education or cover a temporary income gap. These products are taxed more favourably: only the interest portion of the income is taxable, in contrast to the full income from compulsory income products.
Informed, fair decisions matter most
The retirement income decision is complex, deeply personal and irreversible in many cases. That’s why transparency, advice and access to meaningful comparisons are so important.
Adam notes that the volume of decisions, from income levels to longevity assumptions, is not something most clients should face alone, and that empowering conversations and tools are essential at this stage of life.
The day you retire should come with peace of mind, not pressure.
Brought to you by Momentum Wealth.
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