According to a study, 90% of people who retire with money from their retirement funds buy living annuities to provide them with a regular income in retirement. So what are living annuities? And what are life annuities? Are life annuities dead? I would like to explain these two types of products for provision of retirement income.
It would be very beneficial for you to generate a more detailed financial plan to give you a better understanding of your options. You can use this tool from 10x.
Life annuities and living annuities are the two main products that can provide you with an income from your retirement savings. A life annuity is an insurance-type product and a living annuity is an investment-type product. Each of these meets different needs so you will need to decide which will best meet your particular goals.
Life annuity is also called fixed annuity or guaranteed annuity. A life annuity is a contract between you and a life insurance company. You give the life insurance company a retirement capital lump sum. In return, it secures you a pre-determined income for the rest of your life. There are different types of guaranteed annuities.
Some provide an income that increases with inflation, others pay a level income and others yet may increase over time, subject to market returns. In order to ensure a level of income that sustains your lifestyle needs, you should consider an inflation-linked life annuity, which provides an income that keeps pace with inflation.
Although your income is guaranteed for your whole life, your income ceases when you die. Your heirs won't be able to inherit whatever is left on the death. In other words, the capital dies with the investor. For the sake of guaranteeing value for money, I suggest you purchase a life annuity with an underlying guarantee of income for a minimum period, typically between 10 to 20 years.
This period is called a guarantee period. A life annuity with a guarantee period will pay a slightly lower retirement income than one without a guaranteed period.
Typically, you also have no say over the initial income and no flexibility to change your income or to move to another annuity or service provider once you've purchased the product. It is wise to use a financial advisor to get quotes from reputable annuity providers, to get the best initial income, terms and conditions.
On the other hand, a living annuity provides investors with flexibility to choose their income each year (subject to regulatory limits) and where their money is invested.
This will give you the flexibility to draw a lower or higher income as and when your needs change. It will provide you with the flexibility to change service providers or purchase a guaranteed annuity at any time.
Any remaining capital upon death passes to your heirs. However, in exchange for this flexibility, you take on the risk that the income may not last for your retirement years (on average about 30 years), as well as the risk that their investment returns are poor.
This means that your future income could fail to keep up with inflation, or even that you outlive your savings.
Below is a table summarising the difference between an inflation-linked guaranteed annuity and a living annuity:
At retirement you may cash in up to 100% of the value of your provident fund, up to one-third of the value of your pension fund, and up to one-third of the value of your retirement annuity.
However, there are potentially tax implications to taking a portion in cash. The table below shows you the tax rates for various cash amounts taken at retirement.
In addition to the tax above, the income you receive from either a life or living annuity would be taxed as per the applicable income tax table.
Which one should you buy?
There are three possible options: A life annuity, a living annuity, or a combination of the two. Yes, it is possible to deploy your retirement capital to both types of products at the same time.
There are two important factors to consider when you buy annuities: Health and flexibility.
If you are healthy and your family exhibits a history of longevity, you should consider buying a life annuity with at least part, if not all of your retirement capital, with the balance in a living annuity. People that live longer will score with a life annuity, as they will get (a lot) more than they put in. While the liviing annuity gives you the flexibility to adjust your income as and when your needs change.
If you are not healthy, e.g. having chronic conditions such as diabetes, heart conditions, hypertension, you may want to put most, if not all of your retirement capital into a living annuity. This way, you can enjoy the fruits of your years of hard work and savings while still alive, and able to leave the balance to your loved ones when you die. The balance is invested in a life annuity, to provide you with some guaranteed income.
With a living annuity, the recommended drawdown rate, the percentage of the capital you draw as income, is 5% per annum. This would ensure the money should last you for up to 30 years in retirement.
If you need a higher level of income, you should buy a living annuity, which allows you to withdraw up to 17.5% of your capital as income. Bear in mind that the more you withdraw, the quicker the money in a living annuity runs out.
DID YOU KNOW:
Digital cards give you access to your Discovery Health Medical Scheme membership card in a digital format on your smartphone device.
This is a safe and secure way to store, access and view your details. It serves the same purpose as the plastic cards except they are always kept up to date in real time with your membership status.
As a Discovery Health Medical Scheme member, you can use your digital card when you visit a healthcare professional as they will use your details on the card to identify you and confirm your Discovery Health Medical Scheme membership.
Your digital Discovery Health Medical Scheme membership card does not replace your plastic Discovery Health Medical Scheme membership card; it offers you a digital solution to carry your card. If you have an iPhone or iPod Touch, you can also store this card on the Passbook app.
For more information, click here or contact a Daberistic healthcare consultant on 011-658 1333.
Allan Gray has provided an excellent summary of the 2019 budget speech. We would like to share with you here:
What were the key changes?
The attached summary has 3 pages, 10 minute read:
By Edmond Lee, Insurance Advisor
On any given day, if you switch on the TV, or read a magazine, or just cruising around town, it is difficult not to notice the advertisements by insurance companies – and yes, there are many of them out there. Besides the different logos and colour schemes they use, it is often difficult to tell their differences, but as the saying goes, “never judge a book by its cover”, their differences lie at the core of their business model and operations.
In recent years, insurance regulators have imposed more stringent measures to ensure that customers are treated fairly. This not only levelled the playing field but also prompted brokers and insurers to enhance their business model in order to stay relevant. This includes enhancing customer experience, promoting customer engagement, upgrading system capability, improving product features, providing valued-added offerings – just to name a few. These factors ultimately determine the success of an insurer in this day and age.
A success story in the South Africa short-term insurance market is Discovery Insure, which has grown exponentially since its launch in 2011. The product itself has been distinctive right from the start, with safe-driving incentives as a core part of it. In addition, as the new kid on the block, they have the luxury of utilising newest process and system which promote better efficiency. As a case in point, a client of ours phoned our emergency line on a rainy Saturday after his car skid off the road between two busy highways. The client was clearly shocked and worried - we immediately called Discovery 911 and requested help. We sent them the client’s location via Whatsapp which already made life much easier for everyone. They then dispatched a tow truck who arrived on the scene in less than an hour. And there’s more – they also dispatched a taxi to pick up the client, and since the client has selected the optional car hire benefit, he was taken to the nearest car rental depot where he picked up a rental car, and off he went.
In the case above, everything was seamless and it is a great example of how internal systems and processes can enhance customer experience. For us as intermediaries, it is also imperative to choose insurers who have the capability and credibility to truly meet clients’ needs and provide help when it is needed – this is ultimately what insurance is about. We believe that by providing the right advice and solution to clients, we can create win-win relationships which will ultimately benefit everyone.
If you are looking for advice on your short-term insurance needs, you can contact us on the following channels:
- WeChat: daberistic
- Email: ShortTerm@Daberistic.com
- Phone: working hours 011 658 1333. After hours:076 200 5488
As the year 2018 drew to a close, Daberisticians celebrated with a range of activities at the Soweto Cooling Towers. For many staff members, it was their first time visiting Soweto.
Medical aid is a necessary yet expensive purchase in South Africa. Due to the public healthcare system unable to cope with the public demand, people who can afford it or who work for larger employers will choose private healthcare. They buy medical scheme products to cover such healthcare expenses.
Since medical aid is expensive, it is important for a member to understand its benefits, in order to make the best use of it when needed.
As each new year begins medical aid members start with a clean slate, with new benefits and replenished savings available.
If you manage your medical expenses correctly you can avoid out-of-pocket expenses and limit the possibility of running out of benefits.
1. Read up on your medical aid plan
Take the responsibility of understanding your medical aid plan. Visit the medical scheme's website, find your specific medical aid plan information and read through it. Check out the FAQs. If your medical scheme creates YouTube videos on your specific plan and benefits, watch these videos.
The more you understand your medical aid plan, the better you are in a position of making use of benefits provided for by the plan.
2. Speak to your Healthcare Advisor
Medical aid plans are complex. A medical aid plan has many details, terms and conditions. Many members will struggle to make sense of it. A Healthcare Advisor with suitable qualification, training and years of experience can simplify matters for you and answer your specific questions.
3. Find a GP on your medical aid's network
Using network doctors is an invaluable tool to make your medical aid last longer as it means you won’t be charged more than a specific amount.
4. Always use partner networks
Medical schemes negotiate preferential rates with providers who have partnered with them. This means if you use a network hospital, doctor or pharmacy you will not be charged more than the rate agreed with the scheme. This will also help you to avoid co-payments, deductibles and additional out-of-pocket expenses.
5. Ask your pharmacist
Buy over-the-counter medicine to treat less serious ailments and consider using generic medicine which is cheaper but effective. Pharmacists are able to provide sound medical advice on problems such as rashes, colds or illnesses that are not severe, simply ask!
6. Going to hospital - get the facts
Talk to your doctor or specialist before being admitted to hospital. Check what they are going to be charging and what your scheme will cover. If there is a large difference, don’t be afraid to approach your doctor to see if they are prepared to adjust their fee. Alternatively, you can also check if there are other healthcare providers who are on your scheme’s network that will charge you a better rate.
7. Remember to pre-authorise
Pre-authorisation is required for all hospital admissions to ensure your stay will be covered. Always ask if there are any co-payments or sub-limits that will apply and what you can do to avoid these. For planned procedures, it’s also worth checking with your scheme if you will obtain better cover by using contracted providers or having the procedure performed in the doctor’s rooms or a day clinic.
8. ICD-10 codes
If you need to undergo an operation, ask your surgeon for the codes that will be charged. This will include the procedure codes and those for any other products that will be needed, this all helps with pre-authorisation and ensuring the costs will be covered.
9. Chronic health conditions
Some schemes offer programmes to help you manage severe chronic conditions such as cancer, diabetes and HIV/AIDS. These programmes are usually covered from the risk portion of your medical contribution and are not funded from your savings account. They help you use your benefits to maximum advantage while ensuring you receive quality care by using specific providers.
With thanks to: www.w24.co.za
By Edmond Lee, Insurance Advisor
In South Africa, having a car is a necessity which at the same time brings the risk of a motor accident. And let’s face it – motor accident is the last thing on our mind, hence when we encounter it, we often do not know what to do. The purpose of this article is to share some info on the topic, so that you are better prepared in the event of a motor accident.
First and foremost, it is imperative that you remain calm and put safety first. Many people often get out of the car immediately in order to check for damages (or in some cases, argue with the other party), without first checking surroundings. This is very dangerous, particularly on a highway or major roads, hence this must be remembered. If you feel unwell after the incident, limit your movement and wait for paramedics to arrive on the scene.
Secondly, you should not admit any liability. This is an accident which no one wanted to happen, so leave the liability matter to the insurer who will represent you in the case. Furthermore, record as much evidence as possible. Fortunately, these days we all have a cell phone, so you can take pictures and record key information such as:
- Date, time and location of the incident
- Accident scene
- Damages to cars and properties
- Police name and case number
- Other parties’ driver license, license disc and contact details
- Name and contact details of witnesses, towing trucks and other relevant parties
So when should you call the police? If there are no injuries or major blockage of the road, then you don’t have to call the police – you can register the case at the nearest police station within 24 hours. If there are injuries, then the cars can only be moved after police arrives on the scene and takes proper record. In terms of towing, if the car remains derivable, then no towing service is needed. However, if you are worried that driving it may cause further damage (or the car is not derivable at all), then we suggest that you contact your insurer to arrange towing and storage by their appointed service provider to avoid any potential issues. If needed, the police has the right to tow the car for further investigation.
Last but not least, remember to inform your insurance advisor after the incident and provide true and accurate information, so that the claim can be processed without delay. If you have any short-term insurance needs, you can contact us on the following channels:
- WeChat: daberistic
- Email: ShortTerm@Daberistic.com
- Phone: Working hours 011 658 1333. After hours 076 200 5488