How to secure income in retirement and leave a legacy

For many retirees, income security and leaving an inheritance feel like competing goals. Traditionally, you had to compromise: a guaranteed income for life but with little to no legacy through a life annuity, or flexible withdrawals with market risk and the risk of outliving your savings through a living annuity. Our latest research challenges this view and suggests that the relationship between income certainty and inheritance is more nuanced than it first appears.

The compounding effect of five key risks in retirement

Our research frames the discussion between income certainty and inheritance through the lens of the five key risks in retirement, namely drawing an income that is too high, market risk, inflation risk, longevity risk and behaviour tax. It is important to remember that these risks do not operate in isolation. Instead, they interact in ways that directly influence not only the sustainability of income but also the ability to preserve capital and ultimately leave an inheritance.

Each of these risks has a compounding effect. Higher drawdowns increase the required return that is needed to maintain an income and to leave an inheritance, market volatility can erode capital at critical points in time, inflation steadily reduces real purchasing power, behavioural decisions can destroy value, and longevity risk extends the time horizon over which all of these pressures must be managed. The cumulative impact is clear: when using a living annuity, inheritance is not simply a function of product choice, but of how effectively these risks are managed over time.

It is against this backdrop that our research explores the inheritance outcomes of different annuity strategies, and it is here that one of the most surprising insights emerged.

The trade-off between income certainty and inheritance is not binary

At the outset, the expectation was intuitive and widely held: introducing a guaranteed annuity component into a living annuity (using a hybrid annuity structure) would result in a permanent reduction in inheritance. This is because allocating capital to our Guaranteed Annuity Portfolio immediately reduces the market-linked value that is available to beneficiaries upon death. In other words, there is an initial shortfall in inheritance value when compared to a pure living annuity.

However, the analysis revealed that this initial shortfall does not persist in the way many assume.

Over time, a fundamentally different dynamic begins to unfold. In certain instances, the guaranteed income generated by the hybrid annuity reduces the pressure on the market-linked portfolio to fund withdrawals. This, in turn, allows the remaining capital to be preserved more effectively. In the example shown in the whitepaper*, the market-linked value within the hybrid annuity not only recovers but eventually catches up with, and surpasses, the inheritance value of the equivalent living annuity.

This crossover point typically occurs later in retirement, but it is highly significant. It demonstrates that the perceived trade-off between income certainty and inheritance is not as binary as traditionally believed. In fact, under realistic return assumptions, the hybrid annuity was able to deliver:

• A more sustainable and reliable income stream, and
• A higher long-term inheritance value than the living annuity

Finding balance is not about choosing one outcome over the other

This outcome is largely driven by the role of the guaranteed income in stabilising the overall drawdown strategy. By partially insulating the portfolio from market risk and sequence risk, the hybrid structure creates the conditions for capital preservation, something that is often undermined in a pure living annuity when returns fall short or drawdowns are too high.

The key insight, therefore, is not that the trade-off disappears entirely, but rather that it evolves over time. What initially appears as a disadvantage (a lower starting inheritance value) becomes, in many scenarios, a long-term advantage.

In practical terms, this reframes the retirement conversation. Instead of choosing between income certainty and leaving a legacy, retirees can begin to think in terms of structuring their portfolios in a way that improves the probability of achieving both objectives simultaneously. Over and above this, choosing to increase income sustainability can, indirectly, support the preservation of capital, aligning income certainty and leaving a legacy

The balance is therefore not about choosing one outcome over the other, but about structuring retirement income to manage risk, reduce the required return, and to create a more sustainable path over time.

A shift in thinking

Our research is summarised in our paper Reimagining retirement, a whitepaper on retirement risks and the rule of thumb. It challenges many ideas, such as the idea that retirement success is defined by maximising either income or inheritance in isolation.

Instead, it suggests that the focus should be on sustainability. A retirement strategy that delivers consistent income over time is more likely to support both immediate needs and long‑term outcomes.

In practice, this means moving away from viewing retirement as a binary choice, and towards a more integrated approach that balances certainty, flexibility and legacy.

By rethinking how income is structured, it becomes possible to reduce risk, improve resilience, and ultimately achieve a better balance between living well today and leaving something behind tomorrow.

In a world where uncertainty is the only constant, you can implement a different strategy, one that secures a reliable income and preserves capital for the next generation.

Download the full Reimagining retirement whitepaper here and visit our Reimagining retirement page here.

*The impact of including a Guaranteed Annuity Portfolio will vary based on each client’s circumstances and requirements, as well as the levels of income available from guaranteed products at the time of retirement. The information contained in this article is based on the example that is referenced in the whitepaper.

Momentum Wealth is part of Momentum Investments and Momentum Group Limited. Momentum Wealth (Pty) Ltd is an authorised financial services provider (registration number 1995/008800/07, FSP number 657). Momentum Metropolitan Life Limited is an authorised financial services and credit provider (registration number 1904/002186/06, FSP number 6406).