21 Year Old trying to save for retirement.. Opinion?

dunstonh

Isn't having to use at least 75% of your pot to buy an annuity the huge drawback of a pension?

Or an advantage. Annuity rates are typically higher than savings accounts and they are guaranteed for life. Some like that. If you dont like that then you can do income drawdown. Plus the tax relief and tax free growth getting you there cannot be matched by anything with only ISAs/PEPs coming close.

The pension may indeed grow as much as property or other investments but you don't get the chance of using the money to fund the best source of income for retirement.

If you are looking for capital, then pensions are not much use. If you are looking for income, then pensions are still the best option. Although not exclusively. Thats perhaps the biggest change over the last decade. Once upon a time, nothing came close to pensions. Now a few things are getting closer and the flexibility they offer may be worth the fact you dont get as much.

jamesd

Income drawdown is the salvation for larger pensions. For smaller ones, income might be below 10,000 and the future personal and age allowances, so there the pension also has the advantage of tax relief on the way in and no tax on the way out.

EdInvestor

thor wrote: »

Isn't having to use at least 75% of your pot to buy an annuity the huge drawback of a pension? As people are living longer so will the annuity rates get lower. The pension may indeed grow as much as property or other investments but you don't get the chance of using the money to fund the best source of income for retirement.

Given that people are living for 30 years after retirement these days, the big drawback with annuities is that you are fixed into a level of income which will gradually be eaten away by inflation.After 20 years the buying power of your pension will be just over half what it was when you retired.

So it's a guaranteed decreasing income for life.

Bit like a car - starts going down in value as soon as you buy it.

dunstonh

Given that people are living for 30 years after retirement these days, the big drawback with annuities is that you are fixed into a level of income which will gradually be eaten away by inflation.After 20 years the buying power of your pension will be just over half what it was when you retired.

That is what index linked annuities are for. You get a choice of the type of annuity you buy. You make it sound like buying a level annuity is compulsary which is incorrect.