Are annuities really such a bad deal?

atush

bigadaj wrote: »

Not if you're American, they can be very parochial, atush I don't mean you, just a generalisation.

Are you saying americans are parochial, but I couldn't sign up for a telephone or any other acct without my husbands permission?


at least in my country, women were equal lol

atush

TBC15 wrote: »

What’s the risk in coming to the UK via marriage? The UK is generally regarded as the place to be.

Perhaps if you are looking for benefits, not if looking for opportunity?

greenglide

showmethehoney wrote: »

I'm only 56, cannot work but have too much in the way of savings - not a fortune, I promise - to receive any benefits so I've been living for years on just the income from those savings

Assuming that the "cannot work" is for medical reasons then can you not still get NI credits when your savings / income disallow you from the benefit?

atush

I think you can if you sign up for it, but I also know some say (and I am not talking abt anyone here ) they can't work but the local authorities don't agree. So there is an impass.

showmethehoney_2

atush wrote: »

Not meaning to sound smug, but i think you spent your money on other things and weren't MSE?

You think wrong - I never had the money to spend in the first place.

dunstonh

bigadaj wrote: »

How do annuity rates compare with capped drawdown though.

I briefly looked at them a few months ago and was surprised how generous the capped drawdown rates were, you could be drawing well into the teens in drawdown by the time you get into your eighties.

There is of course investment risk which doesn't exist in annuities but using average investment growth rates, allowing for conservatism given that some assets will need to be in low risk classes, then capped drawdown seemed a better bet to me.

To get a 7% income, you would need to take on medium/high risk and be very accepting of volatility, market crashes and possible capital erosion.

The problem with drawdown on high amounts is if a crash happens in the early years. Lets say you take 7% income on £100k. That is £7000. However, a 25% market crash occurs and your fund is now £75k. The fund now needs to grow at 9.3% to cover that income. You are making it very difficult to see any recovery in that fund value and it it stays low for a longer period (such as the slower decline of the dot.com period) then you wont see any growth and any returns you hope will cover the income. That may be fine for the next 5 years but then the next crash comes along and now you are taking double digits as an income and capital erosion is inevitable and you end up with nothing eventually.

Now, lets say you do it after a market crash and benefit from a market recovery, Your income requirement of 7% will be lower (a 25% gain will turn your 7% to 5.6%).

If you wish to reduce the risks of capital erosion then you take a lower income of 3.5% or thereabouts. However, the annuity is 7%. So, you are halving your income.

I have had a phone call today from a potential new client (who wont be) as she is concerned her existing investment has gone down 3% and her adviser retired. I wont be offering services and told her that if she is concerned about such a tiny loss of that amount, she shouldnt be invested. Could you imagine someone like that doing drawdown?

dunstonh

showmethehoney wrote: »

Not meaning to sound bitter and twisted, but it sounds as though you can afford to be less risk averse than I can! I can't gamble with the little I have. I'd have been thousands of pounds better off if I'd stuck my money in the bank rather than pay an "expert" to look after it.

It is highly unlikely you would have been better off with the money in the bank. Not given the returns of the average default fund on a pension over the last 15 years.

showmethehoney_2

atush wrote: »

I really am not sure you live in the real world. Yo cannot live comfortably on the State pension.

Couples will find it easier than singles. but it will not be easy.

Wake up and smell the coffee.

How rude you are and what tosh you write!

For over a decade I have been living on less than £5k and now about £3k. As I have said, I pay a mortgage and the council tax, plus utility bills and food out of that. I did give up the car, but don't really miss it anymore. I don't think I'm suffering, though I may be by your standards, and compared to the average person in the 1800's or many parts of the world today I'm living a live of unimaginable luxury.

I'm looking forward to being an OAP, I'll have more spare cash than when I was working. If a healthy average couple can't manage on £15,000 they need to take a look at their spending.

Anyway, the state pension - even the single tier pension - isn't designed to let you live in a manner that you would consider "comfortable". But it's enough to live on, if you want more you have had decades to make arrangements.

I know many people, for many reasons, will not have found life so easy and I'm not aiming my thoughts at them, but most folk should cope easily on a pension.

I'm smelling the coffee as I type; it's whatever instant was half price at the supermarket. It's hot and quenches my thirst. What more do I need?

showmethehoney_2

dunstonh wrote: »

It is highly unlikely you would have been better off with the money in the bank. Not given the returns of the average default fund on a pension over the last 15 years.

I gave the 'experts' I mentioned £16,000 in 2000, it's now worth £14,366.46 so 'highly unlikely' it may be, but it's true. I guess if I'd put it in a good building society account it would be worth about £24,000 now. Remember we were looking at 6 or 7% returns back then.

dunstonh

showmethehoney wrote: »

I gave the 'experts' I mentioned £16,000 in 2000, it's now worth £14,366.46 so 'highly unlikely' it may be, but it's true. I guess if I'd put it in a good building society account it would be worth about £24,000 now. Remember we were looking at 6 or 7% returns back then.

If you have suffered a loss after all this time then its exceedingly unlucky or bad quality investing (perhaps going too heavy into tech stocks for example). 2000 wasnt a good year to invest and just as it recovered in 2005/7 then along came the credit crunch.

Your typical balanced managed fund invested on the 1st Jan 2000 would now be worth £23,602 (Aviva mixed investment (40-85% which is actually an underperformer compared to sector average which would have resulted in £26006). Most people in that era ended up in the default fund which was typically a balanced managed fund. Cash would be worth about £21797