Rubbish BBC article - "Pensioners could run out of cash"

chucknorris

gadgetmind wrote: »

Yes, it does.

I must say, I'm a little surprised by how a 4% (initial) drawdown that's not much more than the (initial!) natural yield of the portfolio turns into such a large loss over the following years. I guess that's you get from bad timing, no cash buffer, and no way to tighten the belt.

I was beginning to think that maybe an annuity isn't such a bad deal after all, but I've just had a look at some quotes and the rates have fallen a bit since I last looked, the highest from this website:
http://www.find.co.uk/pensions/annuities_centre/annuities-calculator
was only 3.3% (aged 65, no guarantee, rpi indexed and single life). At only 3.3% I think drawdown is a no brainer.

jamesd

A standard annuity is a lousy idea at typical retirement ages. Easily beaten by deferring the state pension to get 10.4% or 5.8% increase in the state pension provided the amount involved is within the sensible range for doing that. At the moment it's hard even for level standard annuities to beat deferring, let along the inflation-linked types.

Also remember that the 4% is assumed to be inflation-linked, not level. For those who want certainty and don't care about inheritance the state pension purchase can still be really useful long life insurance.

For really early retirement a decade or two before state pension age the annuities are even worse because of the long payment periods. Even at 65 you can't get the natural yield of the FTSE as income but it's worst still at younger ages.

Annuities, particularly enhanced annuities, can eventually look like a good deal, once the shift between early death cross-subsidy and expected time of payment at older ages shifts to make the subsidy the more significant factor.