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Investment options to consider to generate income from your lump sum funds

Investment options to consider to generate income from your lump sum funds
Kenny Meiring
By Kenny Meiring
14 Jul 2024
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If you have lump sum to invest, a number of options are available to you, including a life annuity, discretionary investment or retail bonds.

Question: We recently sold a flat that we used as an investment property, as we found the hassle of maintenance and dealing with tenants was becoming a bit much (I am 70 and my husband is 75). We have R2.4-­million to invest. What would you recommend we do, so we can supplement our income?

Answer: I do not have enough information on your full financial situation to make a recommendation. For example, I would need to know what other assets you have, what other income streams you receive and whether there are any dependants who may need to inherit from you.

Here are a few options for you to consider:

Life annuity


You could get a life annuity that would pay you R25,000 a month until both you and your husband pass away. Alternatively, you could get an annuity that increases by 5% a year that would be payable for the rest of your and your husband’s lives. This would start at R18,250.

As this investment will be made with after-­tax money, a significant percentage of the income will be classed as a capital drawdown and will not attract income tax.

The advantage of a life annuity is that the income is guaranteed for the rest of your lives no matter what happens in the stock market. However, when both of you pass away, there would be nothing for your heirs.

Retail bonds


Another option to consider is retail bonds. Here you can lock in a return of 10.5% for five years. This would give you a level monthly income of R21,000 for the next five years, after which you would have your capital returned to you. You could then reinvest it in bonds (if the rates are good), a life annuity or a discretionary investment.

Something you need to be aware of is that your capital will be worth less than it is now, as inflation will have taken its toll.

It may be an idea to look at splitting the investment in two, with half invested in your name and the other half in your husband’s. This could result in some tax savings.

Discretionary investment


With a discretionary investment, you would invest the funds in a portfolio of unit trusts and make monthly drawdowns from it. As long as your drawdowns are less than the growth of the investment minus its running costs, then you should be in a situation where your income will continue for the rest of your lives.

The recommended drawdown for this type of investment is 5%. You could therefore make monthly withdrawals of R10,000 from this investment without endangering the capital.

The advantage of this approach is that if the investments do well, the capital will grow over time and your income will increase.

You will also have access to the capital if you have an urgent need for it.

The table below summarises the options you can consider. DM



Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

You may write a letter to the DM168 editor at [email protected] sharing your views on this story. Letters will be curated, edited and considered for publication in our weekly newspaper on our readers’ views page.

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