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Financial Products Apply knowledge of the financial products and services environment
Mr Dube retires and buys a living annuity with R2 000 000. He asks what annual income he may choose to draw in the first year. Which answer is correct?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) Between R50 000 and R350 000, and the capital can run out if returns are poor.Correct
- b) A fixed amount set by the insurer, which it guarantees for the rest of his life.
- c) Any amount he likes, since the capital in a living annuity belongs to him.
- d) Between R50 000 and R350 000, and the insurer guarantees the income for life.
Why this is the answer
A living annuity allows the annuitant to choose a drawdown of between 2.5% and 17.5% of the capital each year: R50 000 to R350 000 on R2 million. The annuitant carries the investment risk and the risk of outliving the capital. An income fixed and guaranteed for life describes a guaranteed life annuity.
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