Income drawdown vs annuity purchase at retirement

Johnny_Doe

I know this has probably been discussed many times before but with drawdown, even if the value of the fund goes down slightly is that really an issue? If you bank on getting a good 20 years out of retirement and then being too old to enjoy the money or travel etc?

ie 300,000 fund. If you took a 10k income that's a good 30years (ignoring inflation and increase/decrease in fund) I guess one would invest it in cash/bonds and safe options to limit the decreases happening?

In fact if i just had 300k cash in my hand at 55 I'm sure i could live on that through a good 20-30yr retirement? (and if interest rates went up to say 5% even better (I can dream)

PS I have no dependants

Drawdown to me seems like the better option..

Linton

Johnny_Doe wrote: »

I know this has probably been discussed many times before but with drawdown, even if the value of the fund goes down slightly is that really an issue? If you bank on getting a good 20 years out of retirement and then being too old to enjoy the money or travel etc?

ie 300,000 fund. If you took a 10k income that's a good 30years (ignoring inflation and increase/decrease in fund) I guess one would invest it in cash/bonds and safe options to limit the decreases happening?

In fact if i just had 300k cash in my hand at 55 I'm sure i could live on that through a good 20-30yr retirement? (and if interest rates went up to say 5% even better (I can dream)

PS I have no dependants

Drawdown to me seems like the better option..

A number of "yes but"s

1) Inflation - in 25 years time £10K will be worth perhaps £5K now.
2) 20-30 years at 55 wont take you to average life expectancy. So you are likely to need the money over a longer period.
3) Drawdown amounts are limited to a maximum % of your pot. By the time your money had reduced to say £150K you would not be allowed to withdraw £10K annually.

A more sensible plan is to use a range of better performing investments. With this it should be possible to achieve a sustainable, roughly inflation matching £12K annually. Sounds a much better deal. The downside is that you need to manage the money or pay someone else to do so.

Actually with your plan you would be better off with an annuity rather than drawdown. At 55 £300K could give you £13K fixed per year guaranteed for as long as you live with no further effort on your part.

Dorset82

Annuity rates are at all time lows. I'd hold on until they improve before considering purchasing one.

mbarge

Pension_drawdown wrote: »

I have created a blog at pensiondrawdown.me.uk containing information on pension drawdown which also goes on to provide a balanced view vs annuity purchase.

Your site suggests that mortality drag between the ages of 70 and 75 averages 2.2%. My estimate suggests the number is more like 1% for a "healthy" male.

Unless I've missed it I see no mentioned of the problem of Volatility drag? (in essence the opposite of pound cost averaging). For me this is probably the single most important problem with seeking higher yields to fund income as high risk will always be accompanied by either excessive credit risk or high volatility. Neither of which good for (long term) income sustainability.

Yack

I have to make a decision on whether to go with an annuity or income draw down with a financial advisor using a pot of approx. £100k.
I am starting to favour draw down and have spoken to a couple of companies who specialise in this area but how can I check out these companies to ensure they are OK?

dunstonh

Yack wrote: »

I have to make a decision on whether to go with an annuity or income draw down with a financial advisor using a pot of approx. £100k.
I am starting to favour draw down and have spoken to a couple of companies who specialise in this area but how can I check out these companies to ensure they are OK?

Do you mean pension providers or IFAs (I assume you dont mean FAs)?

Your pot size is not that great and you may well find many will put your off the idea (depending on your other retirement provision) or may well price themselves as a passive blocker to doing business with you. You are unlikely to find many reviews if its the IFA you are looking at as most are small local companies.

SallyG

On a fund size of £100,000 what size of upfront fee would an IFA use to act as a "passive blocker" deterrent ?

Badmovie

Dorset82 wrote: »

Annuity rates are at all time lows. I'd hold on until they improve before considering purchasing one.

And how much will they increase by? Enough to make up the shortfall caused by the defferal? Not as simple as that unfortunatley.

Fixed term annuities are another alternative, no investment risk and a Guaranteed maturity amount is known at outset. Use it as a vehicle to take your tax free cash now and worry about annuity purchase later. Take income up to GAD max limit or no income option (with larger GMA at end of term). Also ability to purchase convential annuity on maturity and enhanced annuity at any point during the term. Similar death benefits to drawdown too. Won't suit everyone but worth considering.

jamesd

There is no need for any shortfall from deferring. Income drawdown can be used instead and it allows higher income than normal health annuities.

EnglishSaver

I have a 50K pot and am looking to invest in an annuity, what questions should i be asking ? I'm healthy and own my property!