How living annuity drawdown works in South Africa
When you retire from a pension fund, provident fund or retirement annuity, you must use at least two-thirds of your savings to buy an annuity. Most South Africans choose a living annuity, which keeps your capital invested and lets you draw an income from it. The law sets a band: each year you must withdraw between 2.5% and 17.5% of your residual capital. You choose the rate once a year, on your policy anniversary, and it applies for the next twelve months whatever the market does. There is no tax inside the annuity — the transfer in and all growth are tax-free — but every rand of income you draw is taxed as ordinary income. On your death, any remaining capital passes to your nominated beneficiaries, outside your estate.
The Older Persons Grant
The state Older Persons Grant (the old-age pension) pays up to R2,400 a month from age 60, rising to R2,420 from 75 (2026/27). It is means-tested, though: a single person's income must be below roughly R107,880 a year and assets below about R1.52 million. Most people with a living annuity of any meaningful size will not qualify, which is why this planner leaves the grant switched off by default. If you do receive it, switch it on — it is taxable income and stacks with your drawdown.
How retirement income is taxed
Living annuity income is taxed on the normal SARS tables, exactly like a salary, through PAYE. For the 2026/27 tax year the brackets run from 18% on the first R245,100 of taxable income up to 45% above R1,878,600. Retirees get extra relief through age-based rebates, which are subtracted from the tax itself: a primary rebate of R17,820 for everyone, a secondary rebate of R9,765 from age 65, and a tertiary rebate of R3,249 from age 75. Together the first two mean a 65-year-old pays no tax on the first R153,250 of income. This calculator applies the 65–74 rebates by default.
Sustainable drawdown
The well-known "4% rule" came from US research (Bengen, 1994) over a 30-year horizon. In a living annuity the danger is drawing too much too early: a rate above about 6% tends to erode capital faster than it can recover, and a study by Just SA found roughly one in three living-annuity holders risk running out of money. Because you carry the investment and longevity risk yourself, most advisers suggest starting at 4–5% and reviewing it honestly every year. Drawing the 2.5% minimum preserves capital and can leave more for your heirs; drawing near 17.5% will deplete it quickly.
Frequently asked questions
How much can I draw from a living annuity?
By law, between 2.5% and 17.5% of your residual capital each year. You set the rate once a year on your policy anniversary. Most advisers suggest 4–5% to make your capital last; the planner above lets you test any income level.
Is living annuity income taxed?
Yes — it is taxed as ordinary income on the SARS tables via PAYE, like a salary. The transfer into the annuity and the growth inside it are not taxed; only the income you draw. Age rebates reduce the tax from 65 and again at 75.
What happens to my annuity when I die?
Any remaining capital passes to your nominated beneficiaries, who can take a lump sum or continue the annuity. A living annuity falls outside your estate, so it avoids estate duty and executor fees.
How much tax will I pay as a retiree?
For 2026/27 a retiree aged 65–74 pays no tax on the first R153,250, thanks to the primary and secondary rebates (R27,585 combined). Above that, rates rise from 18% to 45%, with an extra R3,249 rebate from 75.
Assumptions & methodology
The model runs your living annuity capital year by year to your plan-to age. Each year the target net income rises with inflation; the Older Persons Grant (if included) is uplifted the same way as a CPI proxy. The annuity drawdown, grant and any other income are all treated as fully taxable on the SARS 2026/27 tables, with the primary and secondary (age 65–74) rebates applied; the 75+ tertiary rebate and the interest exemption are not modelled. We do not enforce the 2.5%–17.5% drawdown band — at very low or very high target incomes the legal limits would apply instead — and we do not model medical-aid tax credits, the means test on the grant, or capital gains. Figures use 2026/27 rates and are illustrations only. Always check current figures on SARS (sars.gov.za) and with your annuity provider.