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  • FIRST POST
    • choi
    • By choi 16th Jun 17, 11:36 AM
    • 10Posts
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    choi
    Retirement Questions
    • #1
    • 16th Jun 17, 11:36 AM
    Retirement Questions 16th Jun 17 at 11:36 AM
    Hi
    Im retiring very soon now and need some advice

    Annuity or Draw Down

    Im inclined to go for an annuity for peace of mind

    Anyone made the opposite decision and acheived long term success

    Annuity
    Is it better to go for the fixed sum annuity for the rest of my life
    Or an annuity that increases with inflation

    Are there any other ways to improve the annuity
    over the length of my life

    I also want to include my wife in the annuity so it runs after my death [she is 6 years younger than me
    Any advice much appreciated

    I also have a sum of cash to invest
    What options are open
    I dont want to tie the cash up for more than a year at a time
Page 1
    • dunstonh
    • By dunstonh 16th Jun 17, 12:03 PM
    • 89,852 Posts
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    dunstonh
    • #2
    • 16th Jun 17, 12:03 PM
    • #2
    • 16th Jun 17, 12:03 PM
    Anyone made the opposite decision and acheived long term success
    Yes they have. Drawdown has been around a long time. However, there are some that have made a pigs ear of it too.

    Is it better to go for the fixed sum annuity for the rest of my life
    Or an annuity that increases with inflation
    Depends on your spending habits and other income you may have in retirement as well as your age and that of your spouse.

    Are there any other ways to improve the annuity
    over the length of my life
    Use an IFA. IFAs get the best rates unless the fund is less than around £25,000

    I also have a sum of cash to invest
    What options are open
    I dont want to tie the cash up for more than a year at a time
    Modern investments do not tie the cash up. However, the expectation should be that you leave it for the long term.

    Loads of options potentially available. Too little info to really narrow down. One observation is whether you have the knowledge, experience and understanding to be doing all these things DIY or whether you should be using an IFA?
    • bostonerimus
    • By bostonerimus 16th Jun 17, 12:16 PM
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    bostonerimus
    • #3
    • 16th Jun 17, 12:16 PM
    • #3
    • 16th Jun 17, 12:16 PM
    It's not an either or choice......you could annuitize an amount to guarantee a basic income and do drawdown with the rest to have some flexibility and the chance of more income. It's difficult to come up with any firm recommendations without knowing the size of your pension pot, other investments, state pension situation, age, marriage status and how much you need to live on.
    Misanthrope in search of similar for mutual loathing
    • choi
    • By choi 21st Jun 17, 11:05 AM
    • 10 Posts
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    choi
    • #4
    • 21st Jun 17, 11:05 AM
    • #4
    • 21st Jun 17, 11:05 AM
    Hi
    My fund is £255,000
    What kind of return could I get on this from drawdown
    I have a state pension of £155 pw
    I own my house
    I have other savings of £100 k which i want to keep separate

    How long would the fund last if I took £10k per year adjusted for inflation
    What would it cost to run


    Would I be better with an annuity
    • dunstonh
    • By dunstonh 21st Jun 17, 11:18 AM
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    dunstonh
    • #5
    • 21st Jun 17, 11:18 AM
    • #5
    • 21st Jun 17, 11:18 AM
    What kind of return could I get on this from drawdown
    Depends on a number of factors. Anything from 1% to 7% really depending on the factors in question.

    I have other savings of £100 k which i want to keep separate
    Why? It may well be more tax efficient to bring those into play. (tax efficiency meaning less tax paid and therefore your money value going down less).

    How long would the fund last if I took £10k per year adjusted for inflation
    Remember that drawdown is a risk based transaction where the investment rate of return is not consistent. You have years of gains, losses and nothing years. Every generation there is also a significant loss event or two which can completely throw you out. At medium risk investing or higher, I would like to think £10k a year gross is sustainable from £255k but nothing is guaranteed.

    Would I be better with an annuity
    Depends. We don't have enough to go on. You are asking us for solutions without us knowing anything about you. You don't seem to want joined up financial planning either as you have this £100k you call savings that you want to keep separate. Yet, it may be sensible to have some of the income from that. £100k in savings and £255k in pension is £355k. If you take £5k from the pension then the value goes down £5k just as it would if you took it from the savings. What if wanting £5000 out costs you £6250 from the pension but £5000 from the savings (i.e. taking it from the pension means your net value goes down £1250 more).

    Combining annuity and drawdown is quite popular.
    • xylophone
    • By xylophone 21st Jun 17, 11:27 AM
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    xylophone
    • #6
    • 21st Jun 17, 11:27 AM
    • #6
    • 21st Jun 17, 11:27 AM
    You might want to seek professional advice.

    https://directory.moneyadviceservice.org.uk/en
    • bostonerimus
    • By bostonerimus 21st Jun 17, 11:43 AM
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    bostonerimus
    • #7
    • 21st Jun 17, 11:43 AM
    • #7
    • 21st Jun 17, 11:43 AM
    What is your need for income......have you done a detailed budget?
    All I can offer is a very generic statement about a possible withdrawal rate form your 255k pension pot. If future stock and bond market returns are statistically similar to those in the past and you hold a 60% and 40% equity to bond allocation then there is a 95% probability that you will be able to withdrawn an initial 3.5% index linked amount every year for 30 years....so that would be 9k. If you have investing expenses and fees they will reduce that amount.

    I'd get some RPI linked joint annuity quotes, but if you are around 65 and your spouse is a few years younger expect initial payout rates of around 3%. You'll get a guarantee with an annuity, but also lose flexibility and access to the capital in your pension pot. You might want to think about using an annuity to compliment your state pension and give you a guaranteed income floor and then use drawdown for "gravy" as it has the potential to give you more income than an annuity, but you could also lose money as well.
    Last edited by bostonerimus; 21-06-2017 at 11:47 AM.
    Misanthrope in search of similar for mutual loathing
    • Silvertabby
    • By Silvertabby 21st Jun 17, 12:03 PM
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    Silvertabby
    • #8
    • 21st Jun 17, 12:03 PM
    • #8
    • 21st Jun 17, 12:03 PM
    but you could also lose money as well.
    bostonerimus - that's why the protections were introduced. People who know nothing about investments just see a magic 'pot' of money that could be in their bank account instead of in the hands of a pension scheme.

    Do you have final salary schemes in America? I'm a retired LGPS (Local Government Pension Scheme) adminstrator, and when the pension 'freedoms' were announced we were swamped with requests from pension fund members - both current and deferred - who wanted to transfer their final salary benefits into 'cash it in and spend it now' personal pensions.

    As an administrator, I could only offer information and not advice - but I could and did explain the benefits they were giving up and asked why they wanted to do this. Time after time, the reply would be 'the money is better off in my bank account than the Council's', or 'I want to spend it now when I can enjoy it' or 'my son/daughter wants it for a house deposit'.

    On the whole, these were manual workers who had never seen such sums of money and who were so entranced by the sums quoted that they couldn't/wouldn't see what they were giving up - ie, death and ill-health benefits, a guaranteed index linked pension (with spouse's benefits on death) for life, etc etc. Many decent IFA's wouldn't sign off the transfers, presumably because they could see the trouble ahead, but there were many unscrupulous fly-by-night pension advisory services who would and did. Of course, when the money runs out, these boys won't be around to pay compensation for bad advice.
    Last edited by Silvertabby; 21-06-2017 at 12:34 PM.
    • bostonerimus
    • By bostonerimus 21st Jun 17, 12:46 PM
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    bostonerimus
    • #9
    • 21st Jun 17, 12:46 PM
    • #9
    • 21st Jun 17, 12:46 PM
    bostonerimus - that's why the protections were introduced. People who know nothing about investments just see a magic 'pot' of money that could be in their bank account instead of in the hands of a pension scheme.
    Originally posted by Silvertabby
    caveat emptor.......the UK has historically made it expensive and complex to mange DC pension money. There need to be simpler products developed, more consumer education and costs slashed, but personal responsibility needs to be taken. The UK investor needs to take far more control of their money rather than giving the banks and the pension companies so much control.

    Do you have final salary schemes in America? I'm a retired LGPS (Local Government Pension Scheme) adminstrator, and when the pension 'freedoms' were announced we were swamped with requests from pension fund members - both current and deferred - who wanted to transfer their final salary benefits into 'cash it in and spend it now' personal pensions.

    As an administrator, I could only offer information and not advice - but I could and did explain the benefits they were giving up and asked why they wanted to do this. Time after time, the reply would be 'the money is better off in my bank account than the Council's', or 'I want to spend it now when I can enjoy it' or 'my son/daughter needs it for a house deposit'.
    I am an ex-state employee.....so we are both local government retirees. It is not possible to cash out of our DB plan. The IRS has strict rules governing DB plans and generally it's only possible to transfer out when the amounts are small and the lifetime pension would be trivial. When I retired I actually had a one time opportunity to convert my state DC money into the DB plan. I was in the DC plan as the DB plan has a 10 year vesting period and I was not sure I would work there for that long. But I did get to 10 years and took $280k of my DC accumulation and transferred it to the state pension trust. That bought me an index linked $20k pension starting at age 55...so a 7% index linked payout for probably 30 years.

    On the whole, these were manual workers who had never seen such sums of money and who were so entranced by the sums quoted that they couldn't/wouldn't see what they were giving up - ie, death and ill-health benefits, a guaranteed index linked pension (with spouse's benefits on death) for life, etc etc. Many decent IFA's wouldn't sign off the transfers, presumably because they could see the trouble ahead, but there were many unscrupulous fly-by-night pension advisory services who would and did. Of course, when the money runs out, these boys won't be around to pay compensation for bad advice.
    I would require people to attend a training course before cash out. I would give them the tools to make a sensible decision and the respect to let them do what they consider best. I don't see a need to mandate an IFA in this, but people should obviously seek out that advice if they feel that they need it.
    Last edited by bostonerimus; 21-06-2017 at 12:51 PM.
    Misanthrope in search of similar for mutual loathing
    • Linton
    • By Linton 21st Jun 17, 1:03 PM
    • 8,359 Posts
    • 8,254 Thanks
    Linton
    .......
    I am an ex-state employee.....so we are both local government retirees. It is not possible to cash out of our DB plan. The IRS has strict rules governing DB plans and generally it's only possible to transfer out when the amounts are small and the lifetime pension would be trivial. .....
    Originally posted by bostonerimus
    So the US is more restrictive on what people can do with their money than the UK. Who would have guessed it from your previous posts? Perhaps the US can learn something from the UK as there are circumstances when transfering out of a DB scheme could make a great deal of sense.
    Last edited by Linton; 21-06-2017 at 1:13 PM.
    • bostonerimus
    • By bostonerimus 21st Jun 17, 1:09 PM
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    bostonerimus
    So the US is more restrictive on what people can do with their money than the UK. Who would have guessed it from yor previous posts. Perhaps the US can learn somthing from the UK as there are circumstances when transfering out of a DB scheme could make a great deal of sense.
    Originally posted by Linton
    Not in general. The US is usually more permissive when it comes to investing......but, there aren't such generous tax free accounts as ISAs. Of course there is a patchwork of federal and state regulation in the pension area, however, the risk pool and mortality credits inherent in the success of a DB plan mean that they are tightly regulated and there is no general freedom to transfer out.

    I have a serious issue with being able to cash out of a DB plan in the first place...it undermines the whole structure. But if that is going to be an option then it should be made as inexpensive and simple as possible.
    Last edited by bostonerimus; 21-06-2017 at 1:15 PM.
    Misanthrope in search of similar for mutual loathing
    • kidmugsy
    • By kidmugsy 21st Jun 17, 1:25 PM
    • 9,674 Posts
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    kidmugsy
    A relative has taken a With Profits Annuity and is happy with it so far. It came with a "collar" i.e. even if the investments do badly there's a minimum annual payment that is guaranteed.
    • AnotherJoe
    • By AnotherJoe 21st Jun 17, 1:30 PM
    • 7,394 Posts
    • 7,933 Thanks
    AnotherJoe

    On the whole, these were manual workers who had never seen such sums of money and who were so entranced by the sums quoted that they couldn't/wouldn't see what they were giving up - ie, death and ill-health benefits, a guaranteed index linked pension (with spouse's benefits on death) for life, etc etc. Many decent IFA's wouldn't sign off the transfers, presumably because they could see the trouble ahead, but there were many unscrupulous fly-by-night pension advisory services who would and did.

    Of course, when the money runs out, these boys won't be around to pay compensation for bad advice.
    Originally posted by Silvertabby
    Unfortunately, the taxpayer will be.
    • AnotherJoe
    • By AnotherJoe 21st Jun 17, 1:35 PM
    • 7,394 Posts
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    AnotherJoe

    Are there any other ways to improve the annuity
    over the length of my life
    Originally posted by choi
    Take up smoking?
    Move to Glasgow.
    • xylophone
    • By xylophone 21st Jun 17, 1:38 PM
    • 23,146 Posts
    • 13,411 Thanks
    xylophone
    Im retiring very soon now and need some advice
    You are already drawing your state pension? Is this old or new rules?

    Had you considered making a pension contribution from "relevant earnings" in this tax year?

    What is your wife's state pension situation? Does she have any other pension provision? Is she still employed?
    • Malthusian
    • By Malthusian 21st Jun 17, 1:53 PM
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    Malthusian
    Unfortunately, the taxpayer will be.
    Originally posted by AnotherJoe
    No they won't. The cost of bad advice by regulated advisers is paid for by other regulated advisers, and others who fall under the Financial Services Compensation Scheme's "intermediary" fee bracket - and in turn is of course paid by their clients.
    • bostonerimus
    • By bostonerimus 21st Jun 17, 2:37 PM
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    bostonerimus
    A relative has taken a With Profits Annuity and is happy with it so far. It came with a "collar" i.e. even if the investments do badly there's a minimum annual payment that is guaranteed.
    Originally posted by kidmugsy
    The guarantee of an annuity is attractive to many people, but these type of products come with fees and expenses. So it's important to understand those, the potential payout and the guaranteed amounts.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 21st Jun 17, 2:51 PM
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    dunstonh
    The guarantee of an annuity is attractive to many people, but these type of products come with fees and expenses. So it's important to understand those, the potential payout and the guaranteed amounts.
    Originally posted by bostonerimus
    Non-advised annuities don't have explicit charges. it is all implicit like savings accounts.

    Advised annuities are partially implicit apart from the explicit charge of the cost of advice.
    • bostonerimus
    • By bostonerimus 21st Jun 17, 4:12 PM
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    bostonerimus
    Non-advised annuities don't have explicit charges. it is all implicit like savings accounts.

    Advised annuities are partially implicit apart from the explicit charge of the cost of advice.
    Originally posted by dunstonh
    Yes, the fees are usually not visible....eg I have a deferred annuity that pays a minimum of 3% and is currently crediting at 4.85%. The fees are baked in and are not shared with the customer, but it's good to be aware that they exist.
    Misanthrope in search of similar for mutual loathing
    • choi
    • By choi 19th Jul 17, 1:56 PM
    • 10 Posts
    • 0 Thanks
    choi
    Hi
    I have decided to go for a annuity using my full pot of £255,000

    Monthly payment in arrears
    Increasing payments in line with Uk RPI
    Guaranteed for 20 years
    50 % Dependents Income Guarantee

    What amount of annual pension would this give
    Is there any way to improve on this

    I do not like taking big risks
    My wife and I are in good health

    Thanks
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