Annuity Rates - 55 vs 65

exvirilis

Hi all

New posting, although I've been lurking for years.  Sorry this is probably going to be a daft question.

I recently looked at annuity rates here:

Annuity Rates: View Best Annuity Rates from the UK Market

Specifically looking at: 

joint life 50%, level, no guarantee

£6,332

at 55 and

£7,228 at 65.

If I took an annuity now on £100k at 55, that would pay me £63k over the next 10 years.  If I waited until 65, I would only get approx £1k more per year.  Which means if I wait until I'm 65 to buy the annuity it would take 63 years to receive more income that taking it at 55.  

So why wouldn't I take it now at 55?  This seems like a no-brainer, but I'm sure I must be missing something.

Dazed_and_C0nfused

exvirilis said:

Hi all

New posting, although I've been lurking for years.  Sorry this is probably going to be a daft question.

I recently looked at annuity rates here:

Annuity Rates: View Best Annuity Rates from the UK Market

Specifically looking at: 

joint life 50%, level, no guarantee

£6,332

at 55 and

£7,228 at 65.

If I took an annuity now on £100k at 55, that would pay me £63k over the next 10 years.  If I waited until 65, I would only get approx £1k more per year.  Which means if I wait until I'm 65 to buy the annuity it would take 63 years to receive more income that taking it at 55.  

So why wouldn't I take it now at 55?  This seems like a no-brainer, but I'm sure I must be missing something.

I get your logic but you are overlooking what you can do with that £100k yourself over the next 10 years.

Assuming it is invested within a pension then with a fair wind it will be worth a fair bit more than £100k in 10 years time.  So you could potentially buy a much bigger annuity.  Although obviously annuity rates do change so no guarantees.

SnowMan

Ignoring all of the detail and with some assumptions

You could get an annuity of £6,332pa now with that 100K

Or could earn say 4.5%pa interest on that 100K over the next 10 years bringing it up to 155K. And so if annuity rates were the same then that would buy you about £11,200 pa from age 65 (=155/100 x 7,228)

QrizB

Also note that's a level annuity. The real value of future payments will decrease with inflation.

Hoenir

Will you still be working for the next 10 years? If so your accrued pot will continue to grow, 

Cobbler_tone

I am sure the calculations are not as simple as that.
Flat rate, so in today's money what will £6k be worth in 10 years time? No guarantee, I guess not an issue if you are not worried of leaving it behind should the worst happen.
As the post  above, the growth of keeping the £100k yourself and maybe dipping into it.
Unless you are retired presumably you don't need it straight away, especially comparing to taking it in 10 years time.

Each to their own but I personally wouldn't buy a fixed rate annuity at 55, especially if it is not critical income and you are still working and adding to your tax bill. I'd back myself to have it myself and make it last until the expected other incomes kick in. Either that or a phased draw down. It is difficult to establish your true needs and motivation. That £7,228 would presumably be a lot higher once you get there and the pot has increased. 

dunstonh

So why wouldn't I take it now at 55?  This seems like a no-brainer, but I'm sure I must be missing something.

You are missing:

• tax - if you are still working, it could go into higher rate/additional rate.
• inflation - level annuity at 55 is just daft.  Less so in your mid to late 60s.
• health - at 55, most people are still healthy.   At 65, most people have high blood pressure or cholesterol or other conditions that improve the rate further.
• growth if not taken i.e. compare £100k now vs £200k in 10 years time as your fund wont be £100k in 10 years time.

 

exvirilis

thanks for the responses.  All makes sense.  I wasn't planning on taking that now as I plan to work for the next 10 years and have to put kids through uni, so that's going to be horrendously expensive.

Albermarle

exvirilis said:

thanks for the responses.  All makes sense.  I wasn't planning on taking that now as I plan to work for the next 10 years and have to put kids through uni, so that's going to be horrendously expensive.

Depending on how much maintenance loan they can get, you are probably looking at £5K to £7K pa.

On the other hand you do not 'have' to put anybody through Uni, in fact more and more it is being questioned if it is the right thing for so many people. The rules on paying back the loans have changed for the worse as well. 

exvirilis

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

Albermarle

exvirilis said:

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

However the student loan is not a loan/debt  in the usual sense. More of a graduate tax .
You should think very carefully before paying for it all. If the student does not go on to be a higher earner it will be a bad decision.
Martin Lewis' 6 need-to-knows about 'Plan 5' English student finance

Also you may find one of your teenagers does not even want to go to Uni . It is not for everybody.