If you are considering a “living annuity” at retirement, where you have the choice of how much income you can draw down each year (regulated at between 2.5% and 17.5% of the retirement capital), the table below shows how careful you have to be when selecting your annuity level.
| Initial drawdown rate | Initial annual income | Years your capital will last |
| 5% | R300 000 | 35 |
| 6% | R360 000 | 25 |
| 7% | R420 000 | 19 |
| 8% | R480 000 | 16 |
| 9% | R540 000 | 13 |
| 10% | R600 000 | 12 |
Assumptions: Retirement capital is R6 000 000 and a constant investment return of a net 9% per annum on the underlying investments. Initial annual income is increased by 6% per annum in line with the projected inflation rate
Although there are a number of variables, such as investment return and future inflation, as a general rule we believe a maximum 5% per annum initial withdrawal rate is both preferable and wise.