Annuity or drawdown?

scotsrick

Hi all. I'm due to retire next March and have accumulated 4 pensions.

1. 32k with a GAR of 12.5 % which obviously i'm taking.
2. 60k with a GAR of 2.5% which i'm not.
3. 45k
4. 6.5k

This is a pot of 111.5. I'm in talks with an IFA just now but he hasn't come back to me yet.

Do you think i'm better off with a straight annuity or flexible drawdown? I'm 66, married and in pretty good condition so intend to be around a few years yet.

I'm not a gambler so want my money to be safe. The IFA reckons he can get 5% return on a 'safe' investment which to be honest seems high to me but then again I know nothing about investments. Does this sound feasible or is he just trying to steer me in that direction?

Any advice would be welcome so I have a bit more information when I meet him again

Thanks.

lisyloo

hmm....i'd be a bit wary of this IFA.
There arent safe (as is protected from capital loss) investments available at 5% to my knowledge (more like 1%-2%)
You can have a cautiously invested portfolio but it's not safe from capital loss and I think 5% would be too high.

When you speak to him make sure you understand what he's saying, so for example by "safe" does he mean it can lose value or not?

scotsrick

'Cautiously invested portfolio' is probably how he described it. Like I said 5% sounded too good to be true.

dunstonh

Do you think i'm better off with a straight annuity or flexible drawdown?

Without a discussion on your financial situation but also your knowledge, understanding and getting an idea about your likely behaviour when it comes to investing, I dont think anyone here can answer that.

I'm not a gambler so want my money to be safe.

What money? The capital or the income? An annuity gives you the security of income but you give up the capital.

The IFA reckons he can get 5% return on a 'safe' investment which to be honest seems high to me but then again I know nothing about investments.

It depends on whether they actually said safe or you interpreted a similar word to mean safe. Or they used safe with a context given. An investment return of 5% is a reasonable expectation on a sensible risk level. Even the bog standard balanced managed funds from insurers have beaten that through the dot.com period and credit crunch. So, a withdrawal of less than that (say around 3.5%) is considered sustainable. Someone can say words but how you interpret them can vary. I said sustainable. You may interpret that as safe. It is certainly not safe.

Drawdown is not a safe option. However, every option comes with risks or consequences. Sometimes the risks are low. Sometimes not. 5% is not a safe withdrawal rate. Even a 2% draw is not a safe draw rate. The only safe withdrawal rate is an RPI annuity. Everything else is degrees of risk.

'Cautiously invested portfolio' is probably how he described it. Like I said 5% sounded too good to be true.

Cautious needs context.
Our Cautious is more defensive. Some cautious could be closer to low/medium.
Is 5% too good to be true?
Discrete performance of ours by calendar year is

2019 +4.75 (YTD)
2018 -1.42
2017 +10.22
2016 +15.98
2015 +5.70
2014 +12.31
2013 +8.74
2012 +7.62

However, there was only one stockmarket crash in that period and a few corrections. No credit crunch/global recesssion/dot.com style loss period. So, you need to consider a minus 10% year in there for modelling. Possibly two to be on the safe side.... Ooops I said the word safe. However, it is still not safe.

mgdavid

Depends whether he meant 5% before inflation or 5% after !
Ask him which if it's not clear....

bostonerimus

How much income do you need and are you interested in leaving anything to your heirs?

Did you IFA explain how they plan to invest your money to return an annual 5%? you'll have to take some risk and a sensible withdawal rate is probably going to be 4% or less. Then you will have to pay the IFA and platform fees and those could add up to 1% or more. So has anyone done a budget and compared an annuity to drawdown for your particular circumstances?