Flat rate or RPI???

cyclonebri1

kidmugsy wrote: »

No, still mad. If you've got a low life expectancy you should be discussing impaired life annuities versus income withdrawal - level versus inflation-linked is completely irrelevant.

Ok, you are right, everyone else is wrong and I'm mad. PS, we aren't talking "me"

dunstonh

I usually get both figures and work out the breakeven point on a reasonable assumption rate for RPI and consider the lifestyle and other earnings.

Using the same assumption rate, I have seen breakeven points (against the total paid out) in around 17 years and I have seen others that fail to breakeven within 40 years.

So, I would say you cannot really give a guide unless you know the figures.

cyclonebri1

I'm taking a break even time of around 16 to 17 years from this chaps, good enough to make a decision against, ;);)

OldBeanz

Is inflation not higher for old people i.e. they have not benefitted of late as much from low mortgage rates and cheaper electronic gizmos?
I well remember people who retired in the early sixties with no index linking in their pensions, being hammered in the seventies.
I do think that there is a natural requirement for less cash as you slow down (retiral homes excepted) but some might consider they are slowing down at 60 others at 85.
Peace of mind would be high on my list of requirements from a pension.

Bigmoney2

redbuzzard wrote: »

Even 10% looks scary to me - my 2 FS pensions are capped at 5% for the smaller one, and part 2.5% part 5% for the other. I may defer the state pension to increase the index linked income, but that's nearly 5 years off so time to think about that and see what the deal is.

/\ /\ /\ This

Having retired 3 years ago and having some pension inreases capped at 3%, every cost of living I've had so far has come out at below the figure applied, due to the 3% cap.

The other significant factor has been the reduction in income from savings as the rates keep going down.

redbuzzard

An simple thought to keep in mind is that 20 years of 3.5% inflation will halve purchasing power.

But the arithmetic is easy. The problem is in knowing what assumption to use...and if the whole point is to avoid being boracic lint at some time in future, you have to stress test it with a high side estimate. The 20 year average RPI increase has been in double figures 3 times in recent memory - 88,89,90. Maybe that Armageddon scenario is too extreme, but 7% might not be.

Two other quick thoughts -

- annuities are desperately poor value, RPI ones even worse than level (not just lower rates). They should improve soon, if there is any justice, following the rise in gilt yields.

- don't forget the third scenario if you have the option, namely drawdown.

kidmugsy

redbuzzard wrote: »

- don't forget the third scenario if you have the option, namely drawdown.

A family member has chosen a fourth option: an investment-linked annuity; in his case, specifically, a With Profits annuity. This is for protection against inflation across the decades (he hopes) without accepting the dismal returns that IL annuities offer at the mo', and to avoid the unwelcome hassle of managing a SIPP in income withdrawal.

Many people might be wise to go for more than one option.

sandsy

Another view on this relates to activity levels throughout retirement. Traditional wisdom amongst actuaries, at least, is that everyone should choose RPI-linked annuities to maintain the value of their income in real terms.

But people are generally more active and therefore have higher income needs in early retirement which would justify going for a level annuity. There's nothing to stop people squirrelling away any excess income from their level annuity into an ISA each year to help boost their income in the later years.

mania112

kidmugsy wrote: »

A family member has chosen a fourth option: an investment-linked annuity; in his case, specifically, a With Profits annuity. This is for protection against inflation across the decades (he hopes) without accepting the dismal returns that IL annuities offer at the mo', and to avoid the unwelcome hassle of managing a SIPP in income withdrawal.

Many people might be wise to go for more than one option.

To simplify, there are only 2 options, Income Drawdown and Annuity.

There are then many variations of both.

Sometimes an Annuity is Income Drawdown...

jamesd

sandsy, for actuaries specifically that may also be good advice, since the nature of their work probably means that they have higher than usual life expectancies.