Annuity thoughts

Scallypud

Hi everyone ,
I am 60 yrs old and retired. I have just been diagnosed with diabetes type 2 so i decide to look in to annuities due to the volatile markets 
At the moment i have 360K SIPP in drawdown which is down 10% compared to  15 months ago.
I have been offered the following annuities
Life time Annuity £100,000 @ 7.13 %
Fixed Term Annuity ( Guaranteed Drawdown ) £150,000 = £10,000 annual income for 5 yrs with £148,000 Guaranteed Maturity Value.
This would leave £110,000 in drawdown and i have approx £30,000 in savings.
My annual expenditure is £16K

My question is what are you thoughts on the annuities or would i be better off sticking to drawdown and wait for the markets to recover.

MX5huggy

I’m not really clear what the Annuity offers are.

but are you going to make the lifestyle changes to fix the Type2 and live a full life or keep with with the current direction and have a shortened life? 

https://thebloodsugardiet.com/michaels-story/

Scallypud

I fully intend to make the lifestyle changes.

Albermarle

Scallypud said:

Hi everyone ,
I am 60 yrs old and retired. I have just been diagnosed with diabetes type 2 so i decide to look in to annuities due to the volatile markets 
At the moment i have 360K SIPP in drawdown which is down 10% compared to  15 months ago.
I have been offered the following annuities
Life time Annuity £100,000 @ 7.13 %
Fixed Term Annuity ( Guaranteed Drawdown ) £150,000 = £10,000 annual income for 5 yrs with £148,000 Guaranteed Maturity Value.
This would leave £110,000 in drawdown and i have approx £30,000 in savings.
My annual expenditure is £16K

My question is what are you thoughts on the annuities or would i be better off sticking to drawdown and wait for the markets to recover.

I am assuming the annuity figures are based on level annuities, with no inflation linking. Over 20 or 30 years the value of the income will drop very significantly.

due to the volatile markets 

Currently the markets are not volatile by normal standards. In fact they have become a bit boring .
So this would not be a good reason to buy an annuity, even if they were in a more volatile phase.
In any case over the next few years they will no doubt go up and down a few times as normal.
So the question - should you buy an annuity vs drawdown - should not be based on what is happening ( or not happening ) in the markets at this moment in time .

Scallypud

Albermarle said:

Scallypud said:

Hi everyone ,
I am 60 yrs old and retired. I have just been diagnosed with diabetes type 2 so i decide to look in to annuities due to the volatile markets 
At the moment i have 360K SIPP in drawdown which is down 10% compared to  15 months ago.
I have been offered the following annuities
Life time Annuity £100,000 @ 7.13 %
Fixed Term Annuity ( Guaranteed Drawdown ) £150,000 = £10,000 annual income for 5 yrs with £148,000 Guaranteed Maturity Value.
This would leave £110,000 in drawdown and i have approx £30,000 in savings.
My annual expenditure is £16K

My question is what are you thoughts on the annuities or would i be better off sticking to drawdown and wait for the markets to recover.

I am assuming the annuity figures are based on level annuities, with no inflation linking. Over 20 or 30 years the value of the income will drop very significantly.

due to the volatile markets 

Currently the markets are not volatile by normal standards. In fact they have become a bit boring .
So this would not be a good reason to buy an annuity, even if they were in a more volatile phase.
In any case over the next few years they will no doubt go up and down a few times as normal.
So the question - should you buy an annuity vs drawdown - should not be based on what is happening ( or not happening ) in the markets at this moment in time .

Annuities are based on level. P I will get a quote with inflation linked and see what they offer.

I would agree they have stabled lately but i was comparing my pot to 15 months ago.

Steve_666_

You need to split this into 2 phases, what to do over the next 7 years, what to do when the SP kicks in. Are you having to fund the whole 16K+tax from the pension, do you get benefits? Is the life time annuity rate high due to the diabetes, 7% is high for a 60 year old. You could consider x3, getting 21K and using the excess to fund  £2880 back into the SIPP.

Using your pension to buy annuities, is safe, you know what you are getting for life, but if you want to potentially leave stuff for others you will have to get creative.

Without doing any math, for 7 years, you need to source 140-150K, if this is from drawdown, you will have £210k+- any divy/growth in the pension, 30K+interest in savings, and the SP pension to fund your life from 67 onwards?

JohnWinder

I concur. An investment like a normal pension account should not be judged on ‘good or bad’, ‘better or worse than an annuity’, based on a short period of return. The next 20 or 30 years for that pension could be very different from the last few years; might be as bad, too.

Fixed term annuities are strangers to me, so that aside, there are broadly three conditions to consider if annuitising. One, you don’t have enough money to buy the annuity you need to provide the income you need, so don’t annuitise. Two, you have enough money to comfortably provide the income you need with the usual pension account comprising at risk assets like stocks, bonds, real property, so you don’t need to annuitise and probably don’t because it’s not great value. Three, you have enough money to be in between those extremes, so you can annuitise, and do so if it suits your mood. No one will know whether it’s going to turn out to be a more ‘profitable’ choice, but it can help you sleep better. It includes the option to annuitise some not all of your money.

Scallypud

I am 6 yrs away from my state pension age so these are my options i'm considering

OPTION 1
Buy Life Time Annuity for £100,000 generating £7k annually.
Buy Fixed Rate Annuity for £150,000 generating £10k annually. When i reach state pension age the money left in the pot i will transfer to my SIPP.
So on state pension age i will have my State pension + £7k + approx £230k in my SIPP

OPTION 2
Stick with my Drawdown SIPP and hope it out performs the annuity

I guess option 1 is the safer option as i know roughly what i will have in 6 yrs time

QrizB

Scallypud said:

I would agree they have stabled lately but i was comparing my pot to 15 months ago.

You also stated:

Scallypud said:

At the moment i have 360K SIPP in drawdown which is down 10% compared to  15 months ago.

This sounds like it could be a problem with your investments.

O the 9th of March 2022, for example, VWRL (an example index tracker) was £84.38. Today it's £87.44, so up 3.6%.

What is your £360k invested in? How did you choose that investment, and why do you now want to change?

(I realise the 9th of March was near the bottom of a dip in VWRL, but without specific dates it's the best comparison I can do.)

Scallypud

QrizB said:

Scallypud said:

I would agree they have stabled lately but i was comparing my pot to 15 months ago.

You also stated:

Scallypud said:

At the moment i have 360K SIPP in drawdown which is down 10% compared to  15 months ago.

This sounds like it could be a problem with your investments.

O the 9th of March 2022, for example, VWRL (an example index tracker) was £84.38. Today it's £87.44, so up 3.6%.

What is your £360k invested in? How did you choose that investment, and why do you now want to change?

(I realise the 9th of March was near the bottom of a dip in VWRL, but without specific dates it's the best comparison I can do.)

Sorry i meant 18 months ago just before the war broke out

westv

I think 7.13% is quite a good rate for a fixed (presumably no survivor benefits) annuity. Inflation linking would halve that so, in later years, you would have a higher income but it would reduce what you get now.
Depending on inflation it could be a couple of decades before the total income from an index linked annuity outpaces the fixed rate. You may feel you would benefit from the extra income now rather than when you are, say in your 80s.
Decisions, decisions!