With Smoothing, There’s No “Bad” Time To Retire
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“Markets can crash, and they do.” That’s the warning from John Anderson, Managing Executive of Sanlam Corporate Investments, pointing to 2001’s dot-com bubble, 2008’s global financial crisis, and 2020’s Covid-19 pandemic. These crashes typically occur every seven years – and if clients are invested in a typical balanced fund, it’s the worst time to retire.
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During the 2008 financial crisis, for example, the average balanced fund experienced a severe 25% drawdown. “For people retiring in that period, it would have been a challenge because their assets were reduced by 25%, depending on where they invested,” says Anderson. “For those forced to retire in that period, their lump sum would have been lower – and if they were going into a living annuity, they were drawing down in the market lows and locking in those losses.”
But the experience would have been quite different for those invested in a Smooth Bonus fund, which combines investment with insurance to provide long-term investment returns while smoothing out the market’s natural short-term volatility.
“Smoothing places your investment on an insurance balance sheet, where returns are pooled and smoothed over time,” Anderson explains. “Various protections can be put in place during specific times, such as before retirement when you need protection most. The insurer smooths the return so long-term returns match those of the underlying assets but without short-term volatility. In addition to smoothing, you can add guarantees that your returns won't fall below a certain amount. These guarantees are typically set at 50%, 80%, or 100% of the portfolio.”
The benefits of smoothing go beyond protection against market volatility. It also adds value during the crucial transition into retirement. For example, people who retired in 2008 or 2020 and chose a living annuity would have crystallised their 25% losses. “Unfortunately, those losses are then locked in, affecting the longevity of your living annuity,” says Anderson. “If you were invested in a smooth bonus portfolio before and after retirement, you wouldn’t have that problem.”
Sanlam’s analysis shows that, by investing in smooth bonus portfolios, pensioners in retirement making use of living annuities can achieve higher growth and reduced volatility – overall adding 1% per annum compared to a traditional approach to managing living annuities.
At the same time, the pooling structure enables Smooth Bonus funds to negotiate better fees and better arrangements with the various underlying investment managers. It also allows the funds to invest in illiquid and alternative assets to a greater extent than other typical investment strategies do. These benefits are a feature of the new generation of Smooth Bonus portfolios.
“Smooth Bonus funds are a lot more sophisticated than they were 40 years ago,” Anderson concludes. “And the results for people who retired in 2008, 2020, or even 2026 are clear to see. Now is a good time for funds and individuals to be re-assessing their strategies and making use of these solutions to improve their retirement outcomes.”
Discover why smooth bonus funds are back in focus - watch John’s recent conversation with FAnews on navigating retirement timing, risk and market volatility for better client outcomes.
The conversation continues at Sanlam Benchmark 2026 on 25 June - one of South Africa’s most comprehensive research studies and leading symposiums for the employee benefits industry.
For over four decades, Sanlam has delivered trusted insights that shape the trends driving financial confidence. This year, we go even further, bringing you richer data, sharper perspectives, and expert voices that matter most.
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