Guaranteed income in retirement?

redcard

Thrugelmir wrote: »

Profit is declared after expenses. So how much of the "pot" is lost in expenses?

Just performed a back of the fag packet calculation.

Starting with a £100k pot. Drawing down £6k a year and earning 3% on the remaining balance. After 30 years there's still £44,860 left in the pot.

Does that offer value for money to the investor?

You mean £44K shortfall, right?

Thrugelmir

redcard wrote: »

You mean £44K shortfall, right?

Oops you're right. My calc wasn't right.

Linton

Thrugelmir wrote: »

Profit is declared after expenses. So how much of the "pot" is lost in expenses?

What matters isnt how much is lost in expenses, rather what income do you get from an annuity as opposed to some other method of financing your retirement.

Lets look at a real example. For £100K at 65 one can get a fixed annuity of £6K per year. Assuming no interest on the £100K and no charges that gives a payback time of 17 years. A 65 year old male's cohort life expectancy is about 86 ie 21 years. So the effect of the charges must be significantly less than the investment gains.

Without an annuity the retiree would have to plan for living til perhaps 95. To achieve the £6K income for that period without running out of money he would need a steady 5% return above costs on his investments, but would still have a 25% chance of living longer. And of course you dont get a steady return from investments and your ability to manage your investments at 90+ may be limited.

Which option would you choose?

Triumph13

So there we have the answer. To improve annuity payouts George just needs to put Thrugelmir in charge of calculating them!
:rotfl:
(Sorry, couldn't resist it!)

gadgetmind

Thrugelmir wrote: »

Just performed a back of the fag packet calculation.

My fag packet shows the pot running out after 22 years.

That the annuity will continue to be paid indefinitely, with close to zero risk to the investor, seems like a good deal to me.

gadgetmind

Triumph13 wrote: »

To improve annuity payouts George just needs to put Thrugelmir in charge of calculating them!

Yes, and let's put Broown in charge of balancing the budget and orderly disposal of any surplus gold. What could possibly go wrong ...

Triumph13

Linton wrote: »

Without an annuity the retiree would have to plan for living til perhaps 95. To achieve the £6K income for that period without running out of money he would need a steady 5% return above costs on his investments, but would still have a 25% chance of living longer. And of course you dont get a steady return from investments and your ability to manage your investments at 90+ may be limited.

Which option would you choose?

Personally I hope to be lucky enough to have a sufficiently large pot, in comparison to my relatively frugal lifestyle, to go for the third option. Rather than take an annuity or manage a pot down to zero, I'm aiming to build a portfolio that gives a perpetuity - a roughly indexed income that could go on for ever.

The trade off against the other two options is less income (for the same level of risk) in return for the underlying pot (after taxes) going to the kids after my death and that works for me - particularly as I'm happy to take a somewhat higher level of risk on part of the pot than the annuity providers are able to do.

Linton

Triumph13 wrote: »

Personally I hope to be lucky enough to have a sufficiently large pot, in comparison to my relatively frugal lifestyle, to go for the third option. Rather than take an annuity or manage a pot down to zero, I'm aiming to build a portfolio that gives a perpetuity - a roughly indexed income that could go on for ever.

The trade off against the other two options is less income (for the same level of risk) in return for the underlying pot (after taxes) going to the kids after my death and that works for me - particularly as I'm happy to take a somewhat higher level of risk on part of the pot than the annuity providers are able to do.

Yes - I agree that if you dont need the guarantees that annuities offer it is sensible not to pay for them.

In our case we have sufficient in annuities (mainly GAR) to live at our minimum acceptable standard of living, at least until real inflation starts to bite, and so the rest can left reasonably safely to drawdown and S&S ISAs.

mania112

Thrugelmir wrote: »

The Chancellor can't legislate how companies run their businesses.

Yes he can....

Thrugelmir wrote: »

However he can create a fundamental change in the market which will force insurers to rethink their products if they they wish to stay in business.

... and that's how.

These changes will improve annuity rates.

kidmugsy

My understanding is that in recent years companies have been leaving the annuity market, not entering it. It follows that it is not immensely profitable. Assertions to the contrary are implausible.