The risk of market volatility is directly linked to a person’s investment horizon and their exposure to the share market, which is why textbook portfolio management recommends investors reduce their exposure to shares as they approach retirement.  Some retirement funds offer investment portfolios, which automatically migrate a person’s investment out of shares into cash as they near retirement.

This philosophy is based on the assumption that the investor intends purchasing an income for life from an assurance company and therefore the retiree should not have the risk of his or her retirement fund falling on the day they intend buying their pension.  However with the introduction of living annuities, which offer retirees the option of drawing a pension from an investment portfolio, the philosophy of migrating from equity into cash at retirement should no longer apply.  The living annuity needs to have exposure to all the asset classes if the investment is to provide for the income requirements of the retiree.

Conventional life annuities provide the retirees with a guaranteed income for life in exchange for handing over their retirement capital.  With living annuities the investor carries the risk and responsibility of ensuring that the retirement capital will be adequate to provide for their lifelong income and this is the reason the product has attracted criticism as some investors face poverty through poor investment decisions and excessive drawings.

I strongly urge anyone considering a Living Annuity to get qualified professional advice as this is not a product, which should be bought over the counter; get a “prescription” from a Certified Financial Planner who specializes in retirement planning before buying this product.


Mark Williams
Mcomm, CFP®, HdipTax
T. 021-851 3746


Retirement Planning Advice