LIVING ANNUITY SOLUTIONS
STRATEGIQ has launched a range of living annuity solutions aimed at sustaining retirement income for retirees in the most responsible, risk-adjusted manner. The model solutions are structured to target specific drawdown rates while reducing market volatility and delivering long-term, inflation-beating returns after accounting for drawdown needs.
Sustaining a living annuity over 30 years requires a moderately aggressive asset allocation. However, this introduces challenges: increased volatility from growth assets and the risk of poor returns early in retirement (sequence-of-return risk). Addressing these challenges demands a well-crafted strategy that targets inflation-beating returns while effectively managing risk.
Sequence-of-Return Risk:
Sequence-of-return risk refers to the potential negative impact of experiencing poor investment returns early in retirement.
Even if average long-term returns are identical, the order in which gains and losses occur can significantly affect how long retirement savings last. Early losses, combined with ongoing withdrawals, can accelerate portfolio depletion.
Sequence of Return Example: Three retirees—Alice, Bob, and Sam—start retirement with the same level of savings. Each experiences a 30% market drawdown, but at different times: Alice in her first year of retirement, Bob in year 10, and Sam in year 20. Despite identical average returns over time, the timing of the drawdown dramatically affects how long their retirement savings last, highlighting the critical impact of sequence of return risk.
Managing Sequence-of-Return Risk:
The living annuity portfolios are strategically diversified across multiple asset classes, sectors, and geographies to reduce concentration risk.
Liquidity management ensures that adequate cash buffers are maintained to support regular income withdrawals without triggering forced asset sales.
Allocations to lower-volatility return streams – such as retail hedge funds – are incorporated to reduce overall portfolio drawdown risk.
Portfolios are rebalanced as needed—at minimum, on an annual basis—to maintain strategic asset allocation targets.
Portfolio construction is guided by a robust modelling process that optimises exposure to growth assets, while accounting for downside risk and market cyclicality.
Disclaimer: The accompanying graph is based on historical performance data over a 20-year period using the ASISA Category Average, MSCI World Index, and a QIF hedge fund proxy. Modelling assumptions include a 5% average inflation rate, maximum allowable drawdown levels per strategy, and a total annual advice and platform fee of 0.97%. Investment allocations are rebalanced annually to target weights. Assumptions are conservative and for illustrative purposes only.
Why invest in STRATEGIQ’s Living Annuity Solutions?
STRATEGIQ has designed three differentiated Living Annuity Solutions to align with varying income withdrawal requirements:
– Low-Income Solution: 2.5% – 4.5% annual drawdown
– Medium-Income Solution: 4.5% – 6.5% annual drawdown
– High-Income Solution: 6.5% – 8.5% annual drawdown
Strategic allocations to growth-oriented assets are incorporated to help preserve purchasing power and combat the long-term erosive impact of inflation.
Portfolios are structured to mitigate sequence-of-return risk, a key consideration in retirement income planning.
These solutions are accessible via all major LISP platforms in South Africa, ensuring broad availability and implementation flexibility.
