Are annuities really such a bad deal?

kidmugsy

If Ginger Bob reckons you can survive longer just by living in Harrow, he really should buy an annuity and then move to Harrow. Simples.

showmethehoney_2

p00hsticks wrote: »

The proposed state pension is £140 a week. Can I ask how much the cheapest rental property in your area costs and what percentage of the state pension that would be ?

I live in one of the cheapest places in the country and we are still talking £70-£80 a week for a modest rental. Council tax is around £20 a week, leaving £40 for the basics of electricity, gas, water, and food. That's before items like clothing, toileteries, travel, etc

Certainly not "coping easily" and impossible unless you include other benefits such as Housing Benefit/Allowance.

It's a fair point. I confess I was allowing for everyone to have their own home and to have paid off the mortgage. I was talking about couples, so nearly £300 a week rather than your slightly pessimistic £140. I did say single people would find it harder, that I was expecting the retirees to have made some additional provision for themselves, and that it would not be so easy for those whose circumstances had not allowed them to.

GingerBob_3

showmethehoney wrote: »

And ... if when you give us your money the market rates are good, if they worsen your rate stays good. Those folk with a 15% annuity rate from a few years back must be laughing.

Yes, and I'm sure those unlucky people who bought an annuity a couple of weeks ago are really pleased for them all!

Wise up boys! Annuities, these days are bad news. In fact, they're pretty much bad news whenever. You are forced to make a major financial decision and then have to live with it for the rest of your life. No going back, no getting out of it, zero flexibility. If you want total stability, then go ahead, take your wheelbarrow of cash down to Standard Life and hand it over. You may get lucky - but I don't think you will.

atush

Annuities have a 30-60 cooling off period. So in the above circumstance of a few weeks, they could stop the transaction.

I personally right now would not buy an annuity but they aren't BAD, for some like over 75's they are a very good deal for some of your retirement funds.

dunstonh

Wise up boys! Annuities, these days are bad news.

Except when they are not.

bigadaj

atush wrote: »

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

I'm not sure you've hit the right definition of parochial. My point is that Americans are very insular, whereas the uk is and always has been more international, a generalisation I know but a valid one I believe.

bigadaj

dunstonh wrote: »

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?

Fair points, there is risk and volatility as you point out, but 7% annuity returns at 65 is presumably flat rate, so no inflation linking inflation linked annuity would be what 4-5%?

I just want to compare like with like and as you correctly point out many people are too risk averse for drawdown even though they've been taking many of the risks they are averse to in the investments they've actually built up the pension pot with.

Its a wider argument in terms of other assets and how people value income, your flat rate annuity example may be correct for many people who want more money when they are relatively younger and don't mind erosion by inflation over the next twenty or more years.

kidmugsy

bigadaj wrote: »

I'm not sure you've hit the right definition of parochial. My point is that Americans are very insular, whereas the uk is and always has been more international, a generalisation I know but a valid one I believe.

Yeah, and we could correct Atush on the women's lib front too. The USA was pretty backward on that. This is how to do it.
http://en.wikipedia.org/wiki/Sex_Disqualification_(Removal)_Act_1919

enator

bigadaj wrote: »

Fair points, there is risk and volatility as you point out, but 7% annuity returns at 65 is presumably flat rate, so no inflation linking inflation linked annuity would be what 4-5%?

I have just had a quote for an index linked annuity - RPI yearly change, 10 year guarantee period, no dependent's pension payable. The quote was for (drum roll)


2.33%


Pitiful.


PS: Forgot to mention I am a handsome, youthful looking 56 year old but even so, the rate is miserably low. I can take out 7.35% on capped DD before it all changes next year.

Eric_the_half_a_bee

enator wrote: »

I have just had a quote for an index linked annuity - RPI yearly change, 10 year guarantee period, no dependent's pension payable. The quote was for (drum roll)


2.33%


Pitiful.

How old are you?