Living Annuity Asset Allocation: How to Invest So Your Income Lasts

What You Will Learn From This Article

• Why a living annuity has no investment limits, and why that matters
• How your drawdown rate and your asset allocation work together
• What the research says about growth assets and offshore exposure, and who produced it
• Three practical ways to manage market downturns while drawing income
• A yearly review checklist

A living annuity has to do three jobs at once: pay you an income that supports your lifestyle, keep that income going until you die, and grow enough to keep up with inflation along the way. The investments you hold inside it, your asset allocation, are the biggest single factor in whether it succeeds. This article sets out how to think about that decision in 2026. For the basics of how the product works, read our guide to living annuities.

No Regulation 28, So No Safety Net

Before retirement, your retirement annuity or pension fund must follow Regulation 28 of the Pension Funds Act, which limits equities to 75% and offshore exposure to 45%. A living annuity is not bound by those limits. You can hold anything from 100% cash to 100% offshore equities. That freedom is useful, because it lets you build a portfolio around your own needs, but nothing stops you from holding something too cautious, too aggressive or too expensive. The responsibility sits with you and your adviser.

Why Asset Allocation Matters So Much

The Actuarial Society of South Africa’s Andrew Davison has shown how sensitive outcomes are. A R1 million living annuity with the same investment strategy and the same drawdown rate can run out within 15 years or last more than 30, depending only on when the retiree started. In his modelling of 75 hypothetical retirees, 42% did not have enough capital for a 30-year retirement. Longer lives make this harder: analysis reported by FAnews suggests a 74% chance that at least one member of a couple retiring at 60 will survive another 30 years, and a 25% chance that one survives 40 years.

Davison’s conclusion is blunt: a living annuity is not a set-and-forget product. Your investments and your income both need regular adjustment as your age, circumstances and the economy change.

Your Drawdown Rate and Your Investments Work Together

A simple rule links the two: your drawdown rate, plus your fees, plus inflation, needs to stay below your investment return, or your capital will erode. A portfolio that is too cautious may not earn enough to cover those three items. A portfolio that is too aggressive may deliver the return on paper but with swings that force you to sell at the wrong time.

One correction to a common misunderstanding: you do not draw “a percentage based on the performance of the fund”. You choose a percentage of your capital between 2.5% and 17.5%, usually paid as a monthly rand amount, and you can reset it once a year on your policy anniversary. If you want your income to rise with inflation, you must increase it yourself, within the limits. ASISA’s guidance is that prudent rates are 4% to 5% in the first decade of retirement and below 8% in later years. Davison’s modelling points the same way: for a 65-year-old single male with a moderately balanced portfolio, about 4.5% is a reasonable target, rising to about 10.5% by age 80 as the remaining time horizon shortens.

The stakes grow quickly with the drawdown rate. In analysis reported by FAnews, retirees who stayed under 5% had much better odds, while at a 7.5% drawdown the failure rate rose to 100% over a 40-year horizon.

How Much Growth, and How Much Offshore?

There is no single right answer, but the published research clusters around some ranges. It is worth knowing who produced it, because most of it comes from firms that manage the funds being discussed.

• Growth assets: analysis involving M&G and Ninety One, reported by FAnews in 2023, argued that equity exposure should exceed 50% to 60% of a living annuity, and that de-risking at retirement cuts expected returns by about 0.8 percentage points a year and shortens how long the money lasts by around 28 months. Allan Gray’s 2020 paper suggested about 60% growth assets and 40% bonds and cash for a typical annuitant.
• Offshore equity: Ninety One’s modelling, published in 2021 and updated in 2023, found a “sweet spot” of about 30% to 45% offshore equity. Below 25%, failure rates roughly doubled, and above 65% they rose sharply. At very low drawdowns of 2.5%, the offshore split made little difference.

Treat these as ranges to discuss with an adviser, not rules. They are historical models, not forecasts, and the firms behind them earn fees on the growth and offshore funds they describe. They do agree on one point: both extremes, very little growth or all-in on one market, increase the risk of running out.

If you prefer a simpler route, the ASISA fund categories give a rough guide. A multi-asset low equity fund may hold up to 40% in equity, medium equity up to 60%, and high equity up to 75%, while flexible funds have no stated limit. A single balanced fund suits some retirees; others combine several funds for control.

Managing Market Downturns When You Are Drawing Income

The hardest part of investing a living annuity is selling units to pay your income while markets are falling, because early losses are hard to recover from. Three approaches are in use:

• The bucket approach: keep a liquid income bucket that covers the next few years of withdrawals, and a separate growth bucket that you top up from over time. One version holds short-term income assets, a three to seven year multi-asset portfolio, and a seven year plus equity-dominant portfolio
• Return smoothing: Alexforbes offers products that hold back some returns in good years to reduce the number of negative months
• Multiple annuities: 10X Investments suggests holding several living annuities with different allocations, then moving the cautious ones into a guaranteed annuity over time

Another option is to cover your essential expenses with a guaranteed annuity and let the living annuity carry the rest. Actuarial research suggests that blending can produce a higher income and better odds of leaving something to your family than a living annuity alone. Our guaranteed annuity guide explains how that works.

Judge Funds Over Long Periods, and Watch Costs

Your living annuity is a long-term investment, so judge funds over full market cycles rather than last year’s winners. Every fund beats your drawdown in some years and falls short in others, and chasing short-term performance usually means buying after the gains. Switching to cash after a fall locks in the loss: Allan Gray’s 2020 analysis found that a retiree who moved to bonds during the 2009 to 2020 downturns and later back to equities ended with about 23% less than one who stayed invested. Allan Gray sells funds, so weigh it accordingly, but the behavioural lesson is widely shared.

Costs matter just as much as allocation. Fees compound against you for 25 years or more, and you can move your living annuity to another provider under Section 37 of the Pension Funds Act without tax if you are unhappy with them.

A Yearly Review Checklist

• Revisit your drawdown rate on your policy anniversary: is it within roughly 4% to 5% in the early years?
• Check your split between growth, income and cash against your age and your next few years of withdrawals
• Review your offshore exposure and the currency risk that comes with it
• Calculate your total annual cost across platform, fund and adviser fees
• Decide whether part of the capital should move to a guaranteed annuity as you age
• Update your beneficiary nominations

Key Takeaways

• Living annuities are not bound by Regulation 28, so you have full freedom and full responsibility for the allocation
• Timing alone can make a living annuity run out in 15 years or last past 30, so it needs regular review
• Keep your drawdown rate near 4% to 5% in your early retirement; allocation cannot rescue a rate that is too high
• Research from fund managers suggests growth assets above 50% to 60% and offshore equity of around 30% to 45%, but these are ranges, not rules
• Buckets, return smoothing and a guaranteed floor are the main ways to cope with downturns
• Judge funds over full cycles, watch total costs, and review everything every year

Frequently Asked Questions

What asset allocation is best for a living annuity?

There is no single best allocation. Research from fund managers points to growth assets above 50% to 60% and offshore equity of around 30% to 45%, but the right mix depends on your drawdown rate, age and other income. An adviser can test your plan against different market paths.

Does a living annuity have to follow Regulation 28?

No. Regulation 28 applies to pre-retirement products such as retirement annuities and pension funds. A living annuity can hold any mix of assets, including up to 100% offshore, which is why discipline and advice are important.

How much should I draw from my living annuity?

The legal range is 2.5% to 17.5% of your capital each year. ASISA describes 4% to 5% in the first decade and below 8% in later years as prudent, and you can reset the rate once a year.

Should I move my living annuity to cash when markets fall?

Moving to cash after a fall locks in the loss and removes the growth you need later. A bucket structure, which holds a few years of income in cash and income assets while the rest stays invested, is designed to avoid forced selling without abandoning growth.

Can part of my living annuity be turned into a guaranteed income?

Yes. You can switch from a living annuity to a guaranteed annuity, but not back again. Many retirees cover essential spending with a guaranteed annuity and keep the rest invested.

Get Advice on Your Allocation

Setting an allocation means weighing your income needs, your tolerance for losses, your health and your other assets. We recommend speaking to an authorised financial adviser, and you can contact us to be connected. Our retirement calculators can help you test your drawdown before you speak to anyone.

This article was researched and drafted with the assistance of AI tools, using the sources credited in the production notes below, and reviewed for accuracy before publication. Investment research cited here is historical modelling by organisations that manage or sell funds, and is not a forecast or personal advice. Past performance is not a guide to future returns. Please consult an authorised financial adviser before making investment decisions.