Annuity beats drawdown

Nosmo_King_2

It would be interesting to know what the recommendations would be from an IFA.

westv

Nosmo_King_2 said:

It would be interesting to know what the recommendations would be from an IFA.

That would depend on what you wanted to achieve.

FIREDreamer

Audaxer said:

sgx2000 said:

At 4.5% inflation the relative value of the £9200 will halve in 17 years

and the 4% £4800 withdrawl will increase by inflation proportionately 

I assume (have not done the calc yet) the crossover point is 12 or 13 years

I think that would make the crossover point 17 years, as I calculate £4,800 increasing at 4.5% inflation pa would be worth an actual £9,707 after 17 years, whereas the annuity would still be giving you a fixed £9,200 pa. If you took the annuity but only need to spend £4,800 plus inflation each year, you could presumably save or invest the rest of the income until you need it after year 17 to boost your fixed annuity income. 

It does seem to me like a generous annuity rate, but not sure whether it is the best option if you don't need that much income to start with.

According to Hargreaves Lansdown you can get approximately 7.5% at age 65 so maybe OP is around that age?

SouthCoastBoy

It's very difficult to compare the two as you don't know what growth you are forsaking when purchasing an annuity, and how long you are going to live. If there was a 5 or 6 year bear run an annuity could well have been a great decision, however if growth averages 8% pa over the next 10 years and inflation is 3% pa suddenly its not such a great decision. Horses for courses and all that

sgx2000

FIREDreamer said:

Audaxer said:

sgx2000 said:

At 4.5% inflation the relative value of the £9200 will halve in 17 years

and the 4% £4800 withdrawl will increase by inflation proportionately 

I assume (have not done the calc yet) the crossover point is 12 or 13 years

I think that would make the crossover point 17 years, as I calculate £4,800 increasing at 4.5% inflation pa would be worth an actual £9,707 after 17 years, whereas the annuity would still be giving you a fixed £9,200 pa. If you took the annuity but only need to spend £4,800 plus inflation each year, you could presumably save or invest the rest of the income until you need it after year 17 to boost your fixed annuity income. 

It does seem to me like a generous annuity rate, but not sure whether it is the best option if you don't need that much income to start with.

According to Hargreaves Lansdown you can get approximately 7.5% at age 65 so maybe OP is around that age?

I am 64 
My best quote has been from L&G
Highest constantly for the last 6 months.....

It may be that their online quote algorithm handles medical issues better

When, and if. I eventually decide to do it, i will obviously look harder and get proper (not online) quotes

My current expenditure will be met by SP and a good DB index linked pension  
So
My current idea is to split this DC pension between annuity any drawdown....

eskbanker

sgx2000 said:
My current expenditure will be met by SP and a good DB index linked pension

Wouldn't that favour the flexibility of drawdown for the rest, if you have the potential downside covered off already?

sgx2000

eskbanker said:

sgx2000 said:
My current expenditure will be met by SP and a good DB index linked pension

Wouldn't that favour the flexibility of drawdown for the rest, if you have the potential downside covered off already?

Possibly or probably......
I do however like the idea of cutting the risk of a major worldwide recession ......

RogerPensionGuy

sgx2000 said:

eskbanker said:

sgx2000 said:
My current expenditure will be met by SP and a good DB index linked pension

Wouldn't that favour the flexibility of drawdown for the rest, if you have the potential downside covered off already?

Possibly or probably......
I do however like the idea of cutting the risk of a major worldwide recession ......

Just like my thinking, the future won't be the same as the past, it will have similarities indeed, but will be different and I'm guessing it will look very different as there are very different dynamics, mechanisms and very unpredictable outcomes.

Having a bedrock of a DB & SP and then splitting up the DC surplus in to an annuity and drawdown sounds reasonable to me.

Bostonerimus1

An annuity is longevity insurance, drawdown is income generation from an investment. The two should be combined appropriately to provide for retirement and any legacy you want to leave.

OldBeanz

You would get a decent 2nd hand Ferrari for that amount.