Annuities

JoeCrystal

Kim1965 said:

So once the annuity has been taken out, the income from that point is not affected by market volitilty etc?
 I can see why the simplicity of an annuity would appeal to the financially inept.
So do annuity rates tend to follow inflation? Do we ever get decent annuity rates at times of low inflation? 

I have to agree with the appeal of the annuity. One thing I did spot is the idea of having a fixed index-link cost annuity to cover the entirety of one's living costs (especially one can expect to get a state pension by SPA) and using drawdown for luxury and bump up (as well bridge the gap of income before state pension come in) which I find it very appealing.

The only problem I am finding is that getting an index-linked annuity is very expensive at the moment, but it is certainly a goal I am aiming for in two or three decades. Things can change a lot in that amount of time! However, I find it slightly depressing that I only got 24 years left until my ideal retirement age of 60.

westv

Thrugelmir said:

Kim1965 said:

 I can see why the simplicity of an annuity would appeal to the financially inept.

The word guaranteed isn't synonymous with stock market investing. 

Guaranteed volatility? 

Albermarle

Kim1965 said:

So once the annuity has been taken out, the income from that point is not affected by market volitilty etc?
 I can see why the simplicity of an annuity would appeal to the financially inept.
So do annuity rates tend to follow inflation? Do we ever get decent annuity rates at times of low inflation? 

The downside of course is that when you die the annuity dies with you ( unless you have a 50% spouse element , then it dies when they die ) .
With a well managed drawdown ( and a bit of luck) there may well still be a large pot left for your heirs when you die.

Of course the two are not mutually exclusive and you can have both at the same time .

dunstonh

The downside of course is that when you die the annuity dies with you ( unless you have a 50% spouse element , then it dies when they die ) .

The 2015 changes also extended the death benefit options that were allowed.   You can now have 20 or 30 year guarantee periods and return of unpaid fund on death.  (e.g. annuity purchase £100k.    paid out £20k by death, 80k would be returned).  There are some other variations as well.

JoeCrystal

dunstonh said:

The downside of course is that when you die the annuity dies with you ( unless you have a 50% spouse element , then it dies when they die ) .

The 2015 changes also extended the death benefit options that were allowed.   You can now have 20 or 30 year guarantee periods and return of unpaid fund on death.  (e.g. annuity purchase £100k.    paid out £20k by death, 80k would be returned).  There are some other variations as well.

Interesting! Would that make it a lot more expensive to buy such an annuity?

dunstonh

JoeCrystal said:

dunstonh said:

The downside of course is that when you die the annuity dies with you ( unless you have a 50% spouse element , then it dies when they die ) .

The 2015 changes also extended the death benefit options that were allowed.   You can now have 20 or 30 year guarantee periods and return of unpaid fund on death.  (e.g. annuity purchase £100k.    paid out £20k by death, 80k would be returned).  There are some other variations as well.

Interesting! Would that make it a lot more expensive to buy such an annuity?

The more options you take, the lower the annuity rate.  It isn't that expensive but it is a notable hit. Although that does mean more can be returned in the long term.

Moonwolf

I still like the idea of using an annuity with part of my pot to set a guaranteed minimum income level, free of volatility. What is left is to pay for the cream in my coffee.

I don't care if it all goes though, I have no direct dependants and my nephews and nieces will be well catered for, partly at my expense.

I'm not sure why that is financially inept.

westv

Moonwolf said:

I still like the idea of using an annuity with part of my pot to set a guaranteed minimum income level, free of volatility. What is left is to pay for the cream in my coffee.

The problem with that idea at the moment though is that you need a large amount to achieve a small amount of index linked annuity so the cream in your coffee might need to be watered down a bit.

Albermarle

Moonwolf said:

I still like the idea of using an annuity with part of my pot to set a guaranteed minimum income level, free of volatility. What is left is to pay for the cream in my coffee.

I don't care if it all goes though, I have no direct dependants and my nephews and nieces will be well catered for, partly at my expense.

I'm not sure why that is financially inept.

Nor sure why you make the comment in bold ? 
Annuities are still suitable for some people/situations . The problem is that recently they have been very expensive, so drawdown has been much more favoured . However it seems that annuities are likely to become less expensive in future.

Thrugelmir

westv said:

Moonwolf said:

I still like the idea of using an annuity with part of my pot to set a guaranteed minimum income level, free of volatility. What is left is to pay for the cream in my coffee.

The problem with that idea at the moment though is that you need a large amount to achieve a small amount of index linked annuity so the cream in your coffee might need to be watered down a bit.

That view has been created through the lens of recent stock market performance. The reasons behind which are well documented now.