We hear a lot about the 4% withdrawal rule from living annuities. It seems to be predicated on the notion of retiring around the mid-60s and living for another 25 years or so. Would the 4% change significantly for someone retiring at around 75 and expecting to live perhaps 10 to 15 years more?

Dear reader,

According to general practice, the rule of thumb is as follows: For every R1 million invested, R40 000 gross income per year can be generated for approximately 25 years, with income increasing annually by inflation.

Our goal is to preserve capital and generate inflation-linked returns over time. When income levels increase to more than 4% to 5 %, the latter is difficult to achieve, which can naturally put capital at risk.

Please refer to the table below issued by the Financial Sector Conduct Authority indicating the proposed maximum sustainable withdrawal rates for different age groups.

The 4% rule serves as a general guideline rather than a strict rule, as its effectiveness depends on factors such as your time horizon and investment returns. Higher investment returns allow for greater withdrawals, which is why many retirees choose to take on slightly more risk in their portfolios in pursuit of stronger long-term gains.

That said, the right approach varies for each individual. Feel free to reach out to me if you’d like to discuss what works best for your situation.