I'm still a few decades from retiring, but just looking at what's involved in converting my investments into retirement income. One thing that I just realised, or maybe I'm misunderstanding, is that a Living Annuity will be taxed harder than living off of investing in most cases.

As I understand it:

• A Living Annuity suffers no tax within the investment, but any draw down you do is taxed as income tax (as low as 18%, but likely higher).
• Investing directly means you pay capital gains tax (when you actually sell), which is ~40% of the same money in income tax along with an exemption threshold, and dividends tax, which is 20% (except for REITs, which are taxed as income).

So just for the sake of comparison, if you could replicate the same movements as the Living Annuity would have (is that unrealistic? Would Living Annuities investments have some advantage over retail investors or managed funds), only selling and having CGT for the current years expenses, you can end up considerably ahead over the years. I think this only matters if you're choosing a Living Annuity for your compulsory RA/provident/etc conversion, and are considering supplementing it with other funds or taking out less than the one third withdrawable (although that has its own tax implications).

Of course there's other things to consider (having the knowledge, mental abilities aren't compromised by age, etc), but just in terms of current tax rules do I have this right?