Living Annuity vs Life Annuity: How to Turn Your Retirement Savings Into Income

By Finance Guide Editors Updated October 2026 · 5 sources · 4 min read

Prices and facts checked 16 October 2026. We don't accept payment for rankings.

Short answer: when you retire, the money you don't take as cash must buy an annuity (a monthly income). A living annuity keeps your capital invested and lets you choose an income of 2.5% to 17.5% of the balance each year, but if you draw too much or markets fall, the money can run out. A life annuity is bought from an insurer and pays a set income for as long as you live, but you give up access to the capital. If a living annuity falls below R125,000, you can usually take the rest as a lump sum (Government Notice 290 of 2009; ASISA).

Living vs life annuity at a glance

The drawdown band and anniversary rule come from Government Notice 290. The R125,000 threshold comes from ASISA.

How a living annuity works

According to Government Notice 290 of 2009, issued under the Income Tax Act:

• Your annual income must be between 2.5% and 17.5% of the value of the investments, for contracts started on or after 21 February 2007.
• You choose the percentage when you start. You can change it only once a year, on the anniversary date, based on the revised fund value.
• The percentage applies to the value at the anniversary date, so your rand income changes as your investments grow or shrink.

The big risk is drawing too much. ASISA has warned that increasing your income "may result in hardship in years to come when their capital runs out", and that drawing more should be "an absolute last resort" (ASISA). If your investments fall and you keep drawing the same rand amount, your percentage creeps up and your capital shrinks faster.

The R125,000 de minimis rule: if the capital in a living annuity falls below R125,000, the remaining capital can be taken as a lump sum. This limit was raised from R50,000 in 2020 and the increase was permanent (ASISA).

Where the annuity money comes from

At retirement, you can usually take part of your retirement savings as a cash lump sum. The first R550,000 of lump sums over your lifetime is tax-free (Treasury Budget 2026 tax guide). See our retirement lump sum tax guide. The rest buys the annuity. Under the two-pot system, the retirement component is preserved until retirement for this purpose (National Treasury two-pot FAQ).

Annuity income is taxed

Income from either kind of annuity is taxed as normal income, using the SARS tax tables. If you're 65 or older, you get a higher tax-free threshold: R153,250 a year (R171,300 from age 75). Some retirees use a living annuity's flexibility to keep their taxable income in a lower bracket.

How to choose

A life annuity may suit you if:

• You want certainty, and to know your income won't run out
• You don't have the time or interest to manage investments
• You're worried about living a very long time

A living annuity may suit you if:

• You have enough capital to draw a sustainable percentage, ideally at the lower end of the range
• You want to leave something to your heirs
• You're comfortable with investment risk and reviewing your income every year

Some retirees split their money between the two, or start with a living annuity and buy a life annuity later. Ask an adviser whether that's allowed under your product's rules.

FAQ

What is the maximum I can draw from a living annuity?

17.5% of the capital a year (and at least 2.5%), for contracts started on or after 21 February 2007.

How often can I change my living annuity income?

Once a year, on the policy anniversary date.

Can I cash in my living annuity?

Only if the capital falls below R125,000. Then you can take the remaining capital as a lump sum.

What happens to a life annuity when I die?

Usually the income stops, unless you chose a guarantee period or a joint-life option for your spouse.

Is annuity income taxed?

Yes. It's taxed as normal income, and people 65 and older get higher tax thresholds.

Changelog: 16 Oct 2026, first published.