What is a living annuity vs a guaranteed annuity?
A guaranteed (life) annuity hands the pot to an insurer, which pays an income for the rest of your life — no market risk to you, but the capital is spent and the income generally dies with you unless structured otherwise.
A living annuity keeps the pot invested in your name: you choose a drawdown between 2.5% and 17.5% each year, whatever is left is inherited — and the pot can run out.
The guaranteed annuity, plainly
You hand your retirement pot (or part of it) to an insurer. In exchange, the insurer pays an income every month for the rest of your life — however long that turns out to be. Live to 105 and it keeps paying; markets crash and it keeps paying. The market risk and the how-long-will-I-live risk both belong to the insurer.
The trade: the capital is gone. Once bought, the pot belongs to the insurer, and when you die the income generally stops — unless the annuity was structured otherwise at the start:
- Level: the same rand amount forever — simple, but inflation erodes it every year
- Escalating: starts lower, then rises by a fixed percentage or with inflation each year
- Joint-life: keeps paying (in full or a chosen portion) to a surviving spouse
- Guaranteed term: pays for a minimum number of years even if you die early
The living annuity, plainly
A living annuity keeps the pot invested, in your name, in funds you (with your planner) choose. Once a year you set a drawdown — regulation fixes the band at 2.5% to 17.5% of the pot — and that becomes the year’s income.
Whatever remains when you die goes to your beneficiaries: the pot is inheritable. The flip side is that nothing guarantees the income. Draw heavily, or hit a bad run of markets early, and the pot can shrink faster than it recovers. How long a pot survives a given drawdown is exactly what “What is the 4% rule — and how long could a retirement pot last?” works through.
The trade, side by side
- Income: guaranteed = set by contract, for life · living = chosen yearly, can run out
- Market risk: guaranteed = the insurer’s problem · living = yours
- Inheritance: guaranteed = generally nothing, unless structured for it · living = the remaining balance
- Flexibility: guaranteed = locked in at purchase · living = drawdown adjustable every year, within 2.5%–17.5%
- Living long: guaranteed = covered to any age · living = the pot has to last as long as you do
The one-way door
A living annuity can be converted into a guaranteed annuity later — the remaining pot buys the insurer’s lifelong income at that point. The reverse never happens: once a guaranteed annuity is bought, there is no pot left to take back. The choice is revisitable in exactly one direction — living to guaranteed, never guaranteed to living.
And the middle ground
It is not strictly either/or. A retirement pot can be split — one part buying guaranteed income, the other staying invested in a living annuity — and some insurers offer composite (hybrid) products that blend both inside a single wrapper. The certainty and the flexibility can be bought in whatever proportion the pot allows.
Terms used on this page
- guaranteed (life) annuity
- A retirement income product where an insurer pays a set income for the rest of your life in exchange for the pot. No market risk to you — but the capital is spent, and the income generally stops at death unless structured otherwise.
- living annuity
- A retirement income product where the pot stays invested and you choose a yearly drawdown between 2.5% and 17.5%. The income isn't guaranteed — the pot can run out.
- drawdown
- The share of a retirement pot taken as income each year — and, in markets, the drop from a peak before recovery. Both uses matter in retirement.
Reviewed July 2026