Why I don't want to go with drawdown

choi

LHW99 wrote: »

OP would the annuity you are looking at give a) you & your OH sufficient income (with SP etc) to live on? b) give you OH sufficient to live on after your demise?


If so, and you value lack of worry over a bit more money per year - take the annuity.
If not, than one of the other suggestions (hybrid approach?) in the thread may be worth at least putting to your IFA.

I have worked out that the annuity with 50% Spouse and RPI escalation plus my state pension is adequate for my basic needs
I have access to other savings which I could use if required for emergencies or special occasions
My wife will receive a full state pension and £7k work pension in six years time

choi

bostonerimus wrote: »

It would be informative to see the make up of the 1.35% fees. In any case my idea of acceptable fees is very different form the norm accepted in the UK. I'd like the OP to be paying a tenth of that.

I will get a breakdown of 1.35% costs
Plus check whether this is separate or included within the overall anticipated yield

bostonerimus

OP, with an annuity you lose all of your capital, trading it in for a life time income. With drawdown you will be taking a combination of investment gains and capital and you will have to manage things so that you don't run out of money before you die. In most circumstances you will get more retirement income from drawdown than you do from an annuity, but with the annuity you have guaranteed life time income and the assurance of that is what you are paying for.

You don't need to do just one thing. Have you thought about using some of your pot to buy an annuity and leaving some in drawdown? Frankly the biggest danger I see in your plan....and in many plans described here....are the fees charged by platforms, IFAs and funds which can eat up significant amounts of your income and you'll have to pay those in good times and bad.

choi

Linton wrote: »

The value of the pot may well decrease over time, but as long as it is well clear of zero by the time you die that is not a problem.



Forgetting inflation, if you simply put your money as a pile of cash under the bed with zero return it would last 25 years at 4% of the original. This is not wildly different from your life expectancy after retirement. You do not need a very high return to make a significant difference to the amount of money left at death. To provide the inflation linked drawdown you need an annual return matching inflation and a bit more.


But it is a far less safe option than an index linked annuity. However you would be stupid if you took the 4% regardless until you were left with nothing. In practice you would reduce your drawdown well before that point. The real risk is in the amount you get. And with an annuity your starting point is a lot less. That is the balance you must make - certainty of income vs amount of income.

This was the reason I originally though of going with
Single Life
30 year guarantee
RPI escalation

This would pay out £5.5k pa
Which is a bit low
But would pay out more than pot in 30 years
And should provide funds for my wife or kids if I or she dies before then

choi

bostonerimus wrote: »

OP, with an annuity you lose all of your capital, trading it in for a life time income. With drawdown you will be taking a combination of investment gains and capital and you will have to manage things so that you don't run out of money before you die. In most circumstances you will get more retirement income from drawdown than you do from an annuity, but with the annuity you have guaranteed life time income and the assurance of that is what you are paying for.

You don't need to do just one thing. Have you thought about using some of your pot to buy an annuity and leaving some in drawdown? Frankly the biggest danger I see in your plan....and in many plans described here....are the fees charged by platforms, IFAs and funds which can eat up significant amounts of your income and you'll have to pay those in good times and bad.

It is the fees and the uncertainty that makes me favour the annuity over the drawdown

I have no knowledge about investment and would not be happy trying to trying to learn
Hence I would always need support for which I would have to pay

[Deleted User]

choi wrote: »

It is the fees and the uncertainty that makes me favour the annuity over the drawdown

I have no knowledge about investment and would not be happy trying to trying to learn
Hence I would always need support for which I would have to pay

Go for it. Nothings wrong with an annuity

bostonerimus

choi wrote: »

It is the fees and the uncertainty that makes me favour the annuity over the drawdown

I have no knowledge about investment and would not be happy trying to trying to learn
Hence I would always need support for which I would have to pay

Have you considered buying a ladder of savings bonds. That would be very safe and right now you can get around 2% for 5 year bond and that is likely to increase over time. This will be safe and give you the chance to access capital in an emergency or to leave something to your heirs.

Linton

choi wrote: »

It is the fees and the uncertainty that makes me favour the annuity over the drawdown

I have no knowledge about investment and would not be happy trying to trying to learn
Hence I would always need support for which I would have to pay

Yes, in your circumstances it would appear you have no great need of extra income and every wish for it to be as safe and effortless as possible in which case the annuity would seem to be the right answer. Whether you should go for the extended guarantee or a joint life policy is a detail you would have to work through. For example what happens if your wife survives for more than 30 years.


One other option that may be appropriate: If you dont need the income and wish to leave a family inheritance you could simply leave the money in the pension pot. On your death it would pass to your nominated beneficiary outside your estate and so would not be liable for inheritance tax.

choi

Linton wrote: »

Yes, in your circumstances it would appear you have no great need of extra income and every wish for it to be as safe and effortless as possible in which case the annuity would seem to be the right answer. Whether you should go for the extended guarantee or a joint life policy is a detail you would have to work through. For example what happens if your wife survives for more than 30 years.


One other option that may be appropriate: If you dont need the income and wish to leave a family inheritance you could simply leave the money in the pension pot. On your death it would pass to your nominated beneficiary outside your estate and so would not be liable for inheritance tax.

My pension pot is currently in cash with Aviva
[Don't ask]
So I would need to arrange a safe place for it if I took your advice and pay a set up fee and ongoing management and platform fees
Or is there a simpler option for this

choi

bostonerimus wrote: »

Have you considered buying a ladder of savings bonds. That would be very safe and right now you can get around 2% for 5 year bond and that is likely to increase over time. This will be safe and give you the chance to access capital in an emergency or to leave something to your heirs.

Where would I find information on savings bonds

Might need these for a safe play for my savings