Blending security and flexibility for retirement

By: Martin Riekert, Head of Retail Investments at Momentum Investments

Martin Riekert

Retirement marks a major milestone filled with both emotional and financial considerations. One crucial decision people face at retirement is choosing an annuity. When you retire, you have to use at least two-thirds of your retirement savings in your retirement fund to provide you with a regular income during your retirement years.

Traditionally, the choice has been between a living annuity and a life annuity. A living annuity offers the choice of an income level of between 2.5% and 17.5% of the investment value, which you can adjust every year. You also have the flexibility to choose underlying investments like unit trusts to suit your investment strategy. However, this option carries market risk, potentially depleting the capital over time. In contrast, a life annuity pays a guaranteed income for life, so it provides an excellent match for your essential expenses like having a place to live, medical aid, groceries and other regular essential spending, eliminating investment risk but with limited flexibility.

Solution for limited choice

Recognising the limitations of these choices, Momentum Wealth has reimagined retirement income planning by enhancing the Retirement Income Option (RIO), our living annuity. Momentum Wealth introduced the Guaranteed Annuity Portfolio (GAP) as an investment component within its living annuity, giving people the option to blend the security of a guaranteed income from a life annuity with the flexibility of a living annuity.

People, therefore, no longer have to choose between protection and growth. They can blend the 2-in-1 unique solution to meet their income needs when they retire and throughout their retirement years.

When you choose to allocate a portion of your client’s retirement money to the Guaranteed Annuity Portfolio as a component within the living annuity, that portion provides a guaranteed income for life. This adds an ‘asset class’ that delivers a guaranteed, reliable income stream, providing a safety net and ensuring essential expenses like groceries, medical bills, and rent are met regardless of market fluctuations, giving your clients the peace of mind needed for a fulfilling retirement. The remaining capital can then be utilised to generate income that caters for flexible expenses like vacations, hobbies, or travel, allowing for greater control over discretionary spending.

Tool to enhance your advice

Understanding the Guaranteed Annuity Portfolio’s potential is essential, but its successful application relies on a comprehensive financial planning approach tailored to individual needs. This is where your expertise as a financial adviser becomes critical. To help you personalise your financial advice when guiding clients on retirement income planning, we introduced the Income Illustrator. This tool helps financial advisers compare different income scenarios to guide the decision about how much to allocate to the Guaranteed Annuity Portfolio to suit a client’s unique income requirements and circumstances.

The Income Illustrator gives financial advisers a powerful instrument to optimise people’s financial planning outcomes. They can use the tool’s scenario planning capability to explore tailored income scenarios, crucial for informed retirement planning decisions.

At Momentum Wealth, we believe in the value of financial advice. Taking your client’s specific circumstances, risk tolerance, and financial goals into consideration, you can use the Income Illustrator to illustrate the benefits of using the Guaranteed Annuity Portfolio together with the Retirement Income Option to help clients optimally manage retirement income.

Momentum Wealth’s Guaranteed Annuity Portfolio, as a component within the Retirement Income Option, is a compelling option for people navigating the intricate landscape of retirement income. By blending the flexibility of a living annuity with the security of a guaranteed income from a life annuity, this innovative solution empowers you to offer your clients a financially stable and fulfilling retirement, underlining the importance of expert guidance in the planning process.

Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406). The Retirement Income Option and the Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer under the Insurance Act and administered by Momentum Wealth (Pty) Ltd. The information in this article is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002. Momentum Investments does not make any express or implied warranty about the accuracy of the information herein.

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