Living annuity drawdown: how much can you take without running short?
R3 million drawn at 6% pays R15 000 a month in year one - but with 9% growth and 4.4% inflation, that income buys only about R10 300 of today's goods by year 20.
In 30 seconds
- You must draw between 2.5% and 17.5% of the balance each year, and may change the rate once a year on the anniversary.
- Draw 6% while the investment earns 9% and prices rise 4.4%, and your buying power falls every year - the pot never hits zero; your income shrinks.
- Income is taxed like a salary, but over-65s get an extra R9 765 rebate and pay no tax below R153 250 a year.
How a living annuity pays you
At retirement, most of what is in a retirement fund must be used to buy an annuity. With a living annuity, the money stays invested in your name and you choose what percentage to draw as income.
- Between 2.5% and 17.5% of the value each year, chosen at the start and changeable on each anniversary.
- The capital is not guaranteed. A high drawdown in a bad market year eats into capital that then cannot recover.
- A small balance can be taken in cash. If the value drops below R150 000, it may be paid out as a lump sum (SARS Budget 2026 FAQ).
The 2.5% - 17.5% band comes from Government Notice 290 of 2009 under the Income Tax Act's definition of a living annuity. We read it in a reproduction of the notice and could not open the Government Gazette copy; we found no later amendment apart from a temporary widening in 2020.
The drawdown is the decision that matters
Because you draw a percentage of whatever is there, the pot never runs to zero - your income does the shrinking. If you draw 6% while the investment earns 9% and prices rise 4.4%, your buying power falls a little every year.
Use the sliders: drop the drawdown to 4% and see how much steadier the line becomes - at the cost of less income now.
Tax on living annuity income
- Taxed like a salary, using the normal brackets (SARS brackets).
- From 65 you get a secondary rebate of R9 765, and from 75 a further R3 249, on top of the R17 820 primary rebate.
- No tax below R153 250 a year at 65-74, or R171 300 from 75.
- Other income counts too. A second annuity or rental income is added before the provider's PAYE is calculated - which can mean a bill on assessment.
Sources
- Rebates R17 820 / R9 765 / R3 249; tax thresholds R153 250 and R171 300; R150 000 living annuity commutation threshold: SARS - Budget 2026 FAQ (checked 15 Oct 2026).
- 2026/27 brackets: SARS - Rates of tax for individuals.
- 2.5% - 17.5% drawdown band: Government Notice 290 of 2009 (Income Tax Act) - see the note above.
- CPI 4.4% (August 2026): Stats SA - Consumer Price Index, August 2026.
- Income paths and tax: our own calculation, shown in the calculator above.
Education, not financial advice. This post explains how the rules and the arithmetic work. It does not recommend any financial product, and your own situation may differ - speak to a registered financial adviser or tax practitioner before you act. Figures were checked against the linked sources on the date above.