Best option for monthly income ?

Heytheremrblue

I will be taking my pension next year and this post is pretty much the start of my decision process.

I do intend to take professional advice.

It's a DC Pension.

My plan was to take the 25% lump sum and use the rest for a lifetime annuity with the lump sum propping up my other incomes if / when needed until I draw my state pension.

I  understand the annuity will be diluted by inflation over time.

Are there other options I should be considering ?

Linton

Annuities can be inflation matched but pay out a much lower amount than a fixed annuity.

How large is your pot?  How much income do you need? 

cloud_dog

Heytheremrblue said:

Are there other options I should be considering ?

Many probably.

The general rule of thumb is not to take the full 25% out of the tax sheltered environment into a tax liable environment unless it is planned and you have good reason to do so.

With regard to other options, there are many, but a lot of it is dependant on your needs and your capabilities.  If an annuity providers good value for money and / or a comfort/ certainty to you then by all means this could be considered.

The experts on here will probably need a lot more detailed information from you in order to offer their opinions. 

MeteredOut

What do you plan to do with the 25%? Any reason not to keep it invested in your pension and draw it down over time? Probably better (but a bit more risky) than having it sitting in a savings account.

You can get annuities that increase over time, but these obviously cost more.

Are you convinced you want an annuity rather than just a drawdown?

SmokeysTravels

You don’t get much for free in life but you can have an hour of free guidance from Pension Wise. Go to the Moneyhelper.org website to book a meeting. They can give you lots of information regarding your options and signpost you where to find out more yourself.  Once you’ve done this you can decide whether or not you want independent financial advice or are happy to do it yourself. 

You say you understand the annuity will be diluted by inflation but that doesn’t have to be the case. You can buy annuities that increase each year by a fixed amount or link them to an indices such as RPI.

Hope this helps.

Heytheremrblue

Linton said:

Annuities can be inflation matched but pay out a much lower amount than a fixed annuity.

How large is your pot?  How much income do you need? 

About 150k. Taking the 25% the annuity would give me enough.

Heytheremrblue

MeteredOut said:

What do you plan to do with the 25%? Any reason not to keep it invested in your pension and draw it down over time? Probably better (but a bit more risky) than having it sitting in a savings account.

You can get annuities that increase over time, but these obviously cost more.

Are you convinced you want an annuity rather than just a drawdown?

I worked out that with the annuity and using the 25% lump sum when and if for me it would amount to about the same with the comfort blanket of knowing I would have the payment every month. However I dont really understand all the options yet so just sticking my toe in !

Audaxer

Heytheremrblue said:

MeteredOut said:

What do you plan to do with the 25%? Any reason not to keep it invested in your pension and draw it down over time? Probably better (but a bit more risky) than having it sitting in a savings account.

You can get annuities that increase over time, but these obviously cost more.

Are you convinced you want an annuity rather than just a drawdown?

I worked out that with the annuity and using the 25% lump sum when and if for me it would amount to about the same with the comfort blanket of knowing I would have the payment every month. However I dont really understand all the options yet so just sticking my toe in !

Another option would be keeping it all invested and drawing down a small percentage each year, plus inflation. This may be a better option than an annuity if you want an income and to leave a capital sum to dependents. If considering drawdown I think you need to do some research about the process and investment options before doing anything.

Heytheremrblue

Audaxer said:

Heytheremrblue said:

MeteredOut said:

What do you plan to do with the 25%? Any reason not to keep it invested in your pension and draw it down over time? Probably better (but a bit more risky) than having it sitting in a savings account.

You can get annuities that increase over time, but these obviously cost more.

Are you convinced you want an annuity rather than just a drawdown?

I worked out that with the annuity and using the 25% lump sum when and if for me it would amount to about the same with the comfort blanket of knowing I would have the payment every month. However I dont really understand all the options yet so just sticking my toe in !

Another option would be keeping it all invested and drawing down a small percentage each year, plus inflation. This may be a better option than an annuity if you want an income and to leave a capital sum to dependents. If considering drawdown I think you need to do some research about the process and investment options before doing anything.

How would that work for a monthly income though ?

Audaxer

Heytheremrblue said:

Audaxer said:

Heytheremrblue said:

MeteredOut said:

What do you plan to do with the 25%? Any reason not to keep it invested in your pension and draw it down over time? Probably better (but a bit more risky) than having it sitting in a savings account.

You can get annuities that increase over time, but these obviously cost more.

Are you convinced you want an annuity rather than just a drawdown?

I worked out that with the annuity and using the 25% lump sum when and if for me it would amount to about the same with the comfort blanket of knowing I would have the payment every month. However I dont really understand all the options yet so just sticking my toe in !

Another option would be keeping it all invested and drawing down a small percentage each year, plus inflation. This may be a better option than an annuity if you want an income and to leave a capital sum to dependents. If considering drawdown I think you need to do some research about the process and investment options before doing anything.

How would that work for a monthly income though ?

You can enter drawdown where part of your investment is crystallised and you draw down a monthly income, or you can take one or more UFPLS (lump sums) during the year. Some older pension funds only have an annuity as an option, so if that was case you would have to first transfer to a SIPP or other pension to do drawdown or UFPLS.

Some people sell investments to generate an annual income, and some people prefer income funds or Investment Trusts which produce dividends to use as income. I have an income portfolio of funds and investment trusts for dividend income, but I also have a few multi asset funds for which I can sell units if I need more income.