Annuities - An Investment?

zagfles

Thrugelmir wrote: »

Annuities potentially offer a far higher level of income than gilts at the current time.

Eh? Annuities are invested in gilts (usually), obviously annuities have higher income than pure gilts because there's a return of capital element. But the main reason annuities are poor value compared to the past, and to other investments, is that gilt yields are low.

bostonerimus

zagfles wrote: »

Eh? Annuities are invested in gilts (usually), obviously annuities have higher income than pure gilts because there's a return of capital element. But the main reason annuities are poor value compared to the past, and to other investments, is that gilt yields are low.

......mortality credits should "juice" annuity income, but the insurance company obviously takes a cut and how much of the bond returns and the mortality credits that the annuitant gets is the question. As annuities tend to be pretty opaque it's hard for most people to know if they are getting a good deal.

Terron

zagfles wrote: »

Also anyone who buys a flat (non index linked) annuity and thinks that's a safe option is deluded, particularly in the current political climate.

I shall probably buy two such annuities next year, but that is because I have GARs of 10.6%, andteying to change them would likely lose the GAR.

System

It's an investment in the sense that education or eating sensibly is an investment. It's to safeguard someone's future as far as possible.

Baalmaiden

I have a friend who is type 1 diabetic but extremely fit. I reckon an enhanced annuity would be a good bet for him.

zagfles

Terron wrote: »

I shall probably buy two such annuities next year, but that is because I have GARs of 10.6%, andteying to change them would likely lose the GAR.

Indeed, as would I in that situation. But choosing to buy a flat annuity is not a "safe" option, you depend on the pound holding its value, which IMO is less likely than a decent international spread of equities holding their value. Having said that, I would certainly take the risk for a 10.6% GAR!

Thrugelmir

zagfles wrote: »

Eh? Annuities are invested in gilts (usually), obviously annuities have higher income than pure gilts because there's a return of capital element.

Then I would ask what the difference to a safe withdrawl rate is then? As that consists of capital run down as well.

kidmugsy

Terron wrote: »

I shall probably buy two such annuities next year, but that is because I have GARs of 10.6%, andteying to change them would likely lose the GAR.

Have you considered whether it might be worthwhile not claiming your tax-free lump sums, instead taking the 10.6% on them too?

Has the annuity got to be Single Life?

kidmugsy

Thrugelmir wrote: »

Then I would ask what the difference to a safe withdrawl rate is then? As that consists of capital run down as well.

A SWR is sometimes described as self-annuitisation.

By the time you allow for people holding perhaps 40% bonds in their investment portfolio in retirement, and also, say, three years income in cash, you have to wonder whether it might be better to split their investment money between an annuity and an equity fund.

bostonerimus

kidmugsy wrote: »

A SWR is sometimes described as self-annuitisation.

By the time you allow for people holding perhaps 40% bonds in their investment portfolio in retirement, and also, say, three years income in cash, you have to wonder whether it might be better to split their investment money between an annuity and an equity fund.

Wade Pfau has looked at exactly that scenario......note that he did this after signing up with a US insurance company. I like annuities/SP/DB pensions for an income floor and then an equity portfolio for growth and extra drawdown, that's how I've basically organized by retirement income.