Annuity beats drawdown

ukdw

Not sure how reliable this site is - but I just put the £120k into here and it come up with an £8,951 flat annuity (which is fairly similar to the OPs quote) compared with the same amount  (not 4%) as a flat (not inflation linked) drawdown,

The calculator estimates the risk of the drawdown running out as 53%

https://www.wearejust.co.uk/retirement-calculators/drawdown-risk-calculator/

Ps/ the drawdown charges look quite high - so I guess that could be increasing the risk a fair bit.

GazzaBloom

So handing your money to an insurance company who will take on the risk and invest it to generate your guaranteed pay out plus their own handsome profits based on your expected remaining life span and have nothing left to pass on on your death is better than you retaining the risk and investing it yourself and only paying minimal fees and having any residual funds to pass on as legacy when you die?

There's no magic in annuities, you either pay someone to take on market risk and they will make profit in the deal, or you retain the risk yourself and keep what you have.

RogerPensionGuy

GazzaBloom said:

So handing your money to an insurance company who will take on the risk and invest it to generate your guaranteed pay out plus their own handsome profits based on your expected remaining life span and have nothing left to pass on on your death is better than you retaining the risk and investing it yourself and only paying minimal fees and having any residual funds to pass on as legacy when you die?

There's no magic in annuities, you either pay someone to take on market risk and they will make profit in the deal, or you retain the risk yourself and keep what you have.

I don't see it the same as mentioned here.

The annuity provider provides annuities to many people and they manage their books by people who stop drawing early and late.

As I'm not fixated passing on wealth and I'm sure others would like to receive it, I'm more interested in having the bestest, balanced and secure cash flows inbound after working and saving for many years. 

If I take out an annuity and it only pays out for a few years or pays it out for 45 years, I will be happy. 

If I had 100% hindsight and knew it would only be a few years, them sure an annuity isn't the best option, but I don't have the hindsight so I'll take a balanced approach. 

I understand why people like to pass on wealth, but I think some people are too fixated on this item and don't do the best for themselves in the later years of their lives.

sgx2000

RogerPensionGuy said:

GazzaBloom said:

So handing your money to an insurance company who will take on the risk and invest it to generate your guaranteed pay out plus their own handsome profits based on your expected remaining life span and have nothing left to pass on on your death is better than you retaining the risk and investing it yourself and only paying minimal fees and having any residual funds to pass on as legacy when you die?

There's no magic in annuities, you either pay someone to take on market risk and they will make profit in the deal, or you retain the risk yourself and keep what you have

I understand why people like to pass on wealth, but I think some people are too fixated on this item and don't do the best for themselves in the later years of their lives.

I agree...
I have always seen a parents role as teaching your children to be self sufficient...

sgx2000

OldBeanz said:

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

Love it.....
I could buy are car that will become as rusty as me.......

JohnWinder

There's no magic in annuities,......either pay someone to take on market risk and they will make profit in the deal, or you retain the risk yourself

Lifetime annuities have the 'magic' of mortality credits, a feature of no other financial product. Without having to take extra risk you get extra financial reward by dying late, from those who died early. There are three financial risks with retirement funding: market, longevity and inflation. Get an indexed lifetime annuity and liberate yourself from all three.

zagfles

GazzaBloom said:

So handing your money to an insurance company who will take on the risk and invest it to generate your guaranteed pay out plus their own handsome profits based on your expected remaining life span and have nothing left to pass on on your death is better than you retaining the risk and investing it yourself and only paying minimal fees and having any residual funds to pass on as legacy when you die?

There's no magic in annuities, you either pay someone to take on market risk and they will make profit in the deal, or you retain the risk yourself and keep what you have.

You really think they take on market risk? What do you think they'd do if there was a prolonged downturn, where would they get the money from to pay the income? They don't take market risk (or minimal at least). They buy rock solid safe investments like gilts (index linked for IL annuities) and similar. 

They take longevity risk, but that can be spread, some will die young, some will live to over 100, and those dying young cross subside those who live to 100. It's not like market risk where a downturn would affect everybody. Unless someone invents a magic pill that extends everyone' life to 150 !!

sgx2000

I, like many on here, approaching retirement. 
Can remember inflation at 20%....
That frightens the hell out of me....

michaels

sgx2000 said:

Currently
with £120,000 DC pension pot

I can get £9207  -  Flat ,No TFLS, 10 year garranty Annuity (couple of medical conditions)

At 4% Drawdown I would be starting at £4800

I understand the differences between annuities and drawdown
And the pluses and minuses of each
And Inflation
And lack of pot to be inherited

 - But

That difference is HUGE

If you compare apples with oranges in terms of which is most orange then the orange wins by miles.

OP based on the question is would appear that you do not understand the two strategies you are comparing or you would realise that is is a silly comparison.  Apologies for sounding harsh but without a proper understanding you could make an expensive mistake.

MEM62

sgx2000 said:

I, like many on here, approaching retirement. 
Can remember inflation at 20%....
That frightens the hell out of me....

What were interest rates doing when inflation was 20%