Balancing security, flexibility, and legacy in your retirement income strategy.
Your retirement income strategy is one of the most important financial decisions you’ll ever make. Choosing between a life annuity, a living annuity, or a combination of the two can shape your financial wellbeing for decades to come.
Each option comes with its own mix of benefits, risks, and trade-offs – and the most suitable choice depends on your lifestyle, priorities, and appetite for risk. Let’s break it down to help you make an informed decision.
Life Annuity: Guaranteed Income for Life
A life annuity offers the peace of mind of a fixed monthly income for the rest of your life – no matter how long you live. Once purchased, it’s a “set-and-forget” product where the insurer assumes the longevity risk. If your top priority is security and stability, this could be an ideal solution.
Key Benefits:
• Income for life – predictable and not affected by market performance
• Inflation protection – optional income escalation can help preserve your purchasing power
• Attractive rates – current high bond yields make income rates more favourable
Optional features:
o Joint-life options to ensure continued income for a spouse
o Guaranteed payment periods, ensuring income for a minimum term, even in the event of early death
Considerations:
• No flexibility – once it’s in place, terms cannot be changed
• Limited estate benefit – unless a guaranteed term or optional cover is selected, there is typically no capital remaining at death
• Inflation risk – if an income escalation option is not selected, the real value of your income could decline over time
Living Annuity: Flexibility and Control
A living annuity allows you to control your investments and draw a flexible income within regulated limits (currently 2.5% to 17.5% annually). You also retain the ability to pass on remaining funds to your beneficiaries.
Key Benefits:
• Flexible income – adjust your drawdown amount annually
• Investment choice – you choose and manage your underlying investments
• Legacy planning – unused capital is passed to beneficiaries
• Potential capital growth – market exposure allows for long-term growth
Considerations:
• No guaranteed income – the onus is on you to ensure your money lasts
• Market risk – income and capital are influenced by investment performance
• Inflation exposure – your income must grow to maintain purchasing power
• Active management – requires ongoing advice and monitoring
This option is better suited to those who are financially savvy or willing to work closely with a financial adviser to manage their retirement strategy over time.
The Best of Both Worlds
For many retirees, combining both product types provides a balanced approach. You can enjoy the stability of a life annuity while maintaining the flexibility and growth potential of a living annuity.
Why Consider a Blend?
• Stable, lifelong income from the life annuity
• Flexible, adjustable income from the living annuity
• Protection against outliving your savings
• Opportunity to leave a legacy, with any remaining capital in the living annuity passed to beneficiaries
• Customisable protection – joint-life and guaranteed income periods can safeguard your loved ones
This hybrid strategy offers peace of mind and adaptability – especially valuable as needs, markets, and life circumstances evolve.
How to Choose What’s Right for You
There is no one-size-fits-all retirement solution. The right strategy for you will depend on your:
• Need for income certainty
• Desire for investment flexibility
• Concern about longevity and inflation
• Plans for legacy and estate preservation
At mCubed, we believe in personalising retirement income solutions that match your lifestyle, values, and financial goals.
Ready to build a retirement income strategy that works for you?
Speak to a mCubed financial adviser today and explore how to balance stability, growth, and peace of mind in your golden years.
