A level annuity is the best retirement income option

garmeg

OldMusicGuy said:

FatherAbraham said:

Annuities should be bought as young as possible, if one is concerned with maximising one's lifetime periodic income.

It's curious and intriguing that so many people argue the opposite case.

I won't be using annuities to maximise my lifetime income, I will be using them to provide a low risk and secure income base as I get older and don't want to manage my investments any more.

Same here. The kids can have my share ISA and house. The pension is for income not inheritance.

FatherAbraham

garmeg said:

OldMusicGuy said:

I plan to annuitise a chunk of my DC pot when I get to 70 - 75 age range. I always assumed I would go for an escalating/inflation linked but I would definitely think of level annuities as a possibility, maybe "laddered". 

That is my thinking too.

Annuitise 33% at age 65, 50% of the remainder at 70 then 100% of the rest at 75 whilst drawing down the fund at 0.25% per month.

Annuitising 25% at age 60 feels too soon, especially at rubbish rates, even though i plan to retire at 58.

My low DB (in payment, taken 5 years early) plus state pension from 67 will cover the basics, just about.

"Rubbish rates"? That made me smile.

People have been complaining constantly about annuity rates since approximately the thirteenth century (when the Crown started selling them as a way of financing wars).

People were complaining about annuity rates at the turn of the millennium. Those rates look insanely generous now.

Annuity rates in any age, at any age, are neither good nor bad. They just are.

rjmachin

I am probably too young to be thinking about annuities yet, but I like to look at what i "could" get.

On the HL website, for a £168k pension pot, no lump sum, 3% increase per year, single, no guarantee, from age 59, it would start at £4100 per year (Canada Life).
If I was to draw down the same amount from 59, my pot would be depleted by the age of 94

michaels

No inflation protection is an extremely brave call to those of us who have lived through the 70s and 80s.  Annuities are basically a way of derisking and you paying for the privilege.

[Deleted User]

Rather depends on priorities and personal circumstances.  

Like a few in this thread I plan to buy an annuity with some of my assets when I am 75. For me its an insurance against 1. Living way too long and 2. Being incapable of managing investments because of senility, dementia, etc. 

Up to that point I don’t see myself needing an annuity because I have a decent amount of DB income anyway and am comfortable managing our investments. 

Worth noting that annuities are NOT risk free. In a major systemic event insurance companies could go bankrupt and the government might not be able/willing to step in. Hasn’t happened but possible. Its just that going senile or living too long is more likely. 

TBC15

In answer to your question IMHO  NO.

DaveMcG

^

I wish I had simply said that as I don't really see why OP started this thread.

Brynsam

FatherAbraham said:

I'm conscious that there's a potential contradiction in this reasoning - desiring the longevity-risk pooling of an annuity, yet rejecting the inflation-risk insurance of an escalator.

So what's the point of your thread? If you think it's the best option, fine. Others may disagree; depends entirely on circumstances and attitude to risk. 

Dox

FatherAbraham said:

Isn't it?

All "safe withdrawal" rates for drawdown are just wishful thinking. Indeed, the collective risk-pooling of an annuity means that one has no need to hold reserves against longevity.

I used to think that an inflation-linked annuity was the way to go, but given the buffering effect of the state pension's inflation protection, the downside risk of a level annuity is somewhat mitigated, and it's better to self-indie by not sleeving all of one's income in the early years.

Gosh, but there's some gibberish posted on this site under the guise of wise knowledge! Hopefully people will be too bemused to attempt to understand it, never mind follow it.

FatherAbraham

Dox said:

FatherAbraham said:

Isn't it?

All "safe withdrawal" rates for drawdown are just wishful thinking. Indeed, the collective risk-pooling of an annuity means that one has no need to hold reserves against longevity.

I used to think that an inflation-linked annuity was the way to go, but given the buffering effect of the state pension's inflation protection, the downside risk of a level annuity is somewhat mitigated, and it's better to self-indie by not sleeving all of one's income in the early years.

Gosh, but there's some gibberish posted on this site under the guise of wise knowledge! Hopefully people will be too bemused to attempt to understand it, never mind follow it.

Oh, you forgot to explain why you disagree with it.