An additional source of income during your retirement come in the form of compulsory purchase annuities and volunatry annuities, which purpose is to supplement you income during your retirement from lump sum investments that provide future income.
When you retire and leave your penison or retirement fund in terms of contributions, you have the opportunity tio withdraw up to 1/3 of the capital and are then forced to purchase a compulsory annuity with the balance of the money in your pension or retirement fund to provide you with an income.
If you come into a fair chunk of cash that you wish to use to cater for your income needs during retirement you can make a lump sum contribution to a voluntary annuity policy.
So what is the difference?
Well for starters the compulsory contribution annuity is fully taxed as income wheras the voluntary annuity is tax free on the capital portion.
Be careful which type of annuity you choose, insurance companies are there to make money and with a traditional or single life annuity, the insurance companies actuaries will make the calculations on your life expectancy and give you an income based on these calculations.
Should you die before expectations, whatever is left in the single life annuity remains with the insurance company and is not passed on to your estate or family members.
A living annuity on the other hand are far more flexible in that you are in control of the capital through selection of different risk funds run by the company, eg: unit trusts, company managed portfolio, money market. Always consult your retirement planner before making your decisions. You choose the amount of income you receive and can change it at any time. This is very important as it gives you the option of withdrawing less income while still relatively young and in a higher tax bracket, assuring you of maximum benefits when you are older. The portion left over, if any when you die forms part of your estate.
The only negative side with living annuities is that income is not guaranteed like in the traditional annuity but is determined by the returns of the investments.
This type of annuity is more for the person who already has a retirement plan that will provide a guaranteed retirement income and wishes to supplement the income.