Which retirement annuity should I take

Living vs Guaranteed Annuities

Pros & Cons

In our previous posts we discussed both a living annuity and a guaranteed annuity in detail. Remember that at retirement, you need to purchase an annuity. So, it’s important for you to understand the differences between the two. To give you all the information possible, this post is going to focus on the pros and cons of each (living vs guaranteed) and do some comparisons.

We always recommend that you ask to see both options at retirement. For a living annuity – what would my income be with a safe drawdown percentage (remember, we spoke about that being somewhere between 4 and 5%)? If that drawdown percentage is too high, you’re going to run out of money.

With a guaranteed annuity – what would my starting income be? And what increases might I expect? Remember, you’re guaranteed income for the rest of your life, but the cost of goods also goes up (don’t underestimate inflation). So, you want to ensure that your guaranteed income will also increase in a similar manner to cover you for the rising cost of goods.

In this video we take a 65 year old male and consider his options. Take a look:

Flexibility vs certainty

Generally, the biggest difference between a living and guaranteed annuity is: Flexibility & Certainty

With a living annuity you have less certainty but more flexibility. With a guaranteed annuity you have more certainty, but with some limits. Share on X

Now, here’s something to consider… You don’t necessarily have to choose one or the other. You can do a combination of the two… check out our next post…

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More in this series on retirement options

In case you missed it, see our previous posts in this series:
  • Preparing for retirement – This is the first post in a short video series covering everything you need to know to start preparing for retirement!
  • How much cash do I take? – The first question you’ll ask at retirement is “how much cash do I take”? Let’s help you answer that with this 4 minute video.
  • Living annuities – With living annuities, the most important thing is that you understand the implications of how much you’re withdrawing each year.
  • Guaranteed annuities – Guaranteed annuities are essentially an insurance product. They guarantee you an income for the rest of your life!
Of if you want to jump ahead...
  • The blended annuity – A blended annuity is a combination of a living annuity and a guaranteed annuity. The idea is to determine what your essential expenses are.
  • Your retirement options – Let’s recap some of the key points to ensure you understand all your retirement options and make the best decisions with your money.

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About the Author

I am passionate about helping people understand their behaviour with money and gently nudging them to spend less and save more. I have several academic journal publications on investor behaviour, financial literacy and personal finance, and perfectly understand the biases that influence how we manage our money. This blog is where I break down those ideas and share my thinking. I’ll try to cover relevant topics that my readers bring to my attention. Please read, share, and comment. That’s how we spread knowledge and help both ourselves and others to become in control of our financial situations.

Dr Gizelle Willows

Dr Gizelle Willows


PhD and NRF-rating in Behavioural Finance