Are you delaying your RETIREMENT! Ensure you do your research when buying an Annuity

Delaying their retirement is making financial sense for more and more workers everyday who are fit and happy enough to continue working. What with annuity and savings rates at some of their lowest levels ever, surviving on their pension income alone is not possible for many. And those with a personal pension that must be converted into an annuity to provide a pension, delaying means further risk. Reason being, is because every month an annuity purchase is delayed means that the person retiring loses possible income. And given all the concerns from the financial markets and how it affects annuities seeking independent advice is essential for those who are buying an annuity. So make sure you shop around, as you DO NOT have to buy an annuity from your pension company and always ensure you discuss your health issues as you may be eligible for an enhanced rate based on any medical conditions you suffer such as high blood pressure or if you smoke. How to get a better retirement income, despite the record low annuity rates Every week and month, people who are retiring turn their years of hard work and pension pot into their retirement income for life by buying an annuity. But despite this need, annuities have never ever offered such bad value as they do today. Whats to blame? Well falling gilt yields, Quantitative Easing or QE as it is also known, and of course we are all living longer. This all helps creates this challenging situation. Typically Annuity buyers have personal pensions or have contributed into a company defined contribution or money purchase pension. Those retiring who are lucky enough to have a defined benefit or salary-linked pension from their work do not such worries as their retirement income does not depend on buying an annuity. But their employers carry the risk. Typically again Annuity buyers opt to buy the first deal offered to them by their pension fund company. This usually is possibly poor value as better rewarding annuities can also be bought from other pensions providers. Or even the annuity offered to them may not be suitable for their needs. Or they simply fail to take into account key factors such as their health and marital status. By choosing the first annuity they’re offered, pensioners may exclude possible alternatives such as income drawdown and fixed-term annuities for example. The most important decision is when is it a good time to buy an annuity. For someone who can afford to wait, it is a question of knowing whether it pays to buy an annuity now or hope that rates increase at some time. As annuity rates may be at near rock bottom, but the experts say that it doesn’t mean they can’t fall even further. The best option, with all these things to consider is to always seek financial advice. However, given all this I have grouped together some helpful information. TRADITIONAL ANNUITIES Most pension fund providers will write to YOU ahead of your retirement and provide YOU with an indication of the income you can expect from your £150,000 pension pot. Typically, they quote on a single-life basis with a yearly guarantee to pay out if YOU die early. The income is taxable and is typically paid monthly in advance. However, if Stephen has a history of smoking or is in poor health, he could opt for an enhanced annuity, which pays a higher income in the expectation that he will not live as long as someone that is in good health. Instead of a XX yearly guarantee, it could be replaced with a longer XXX yearly guarantee, giving more protection in the event of Stephen dying early during in his retirement. The cost of the extended yearly guarantee in terms of reduced annuity is apparently very little – less than 2% in the case of the good health annuity. Most couples opt (and in my opinion should) for joint-life annuities that give the spouse a greater financial security. So both could buy a joint-life annuity (level payments), with a 50% spouse’s pension and a XX year guarantee. This means if Stephen dies, Alison will receive half of what he received until she herself dies. If Stephen dies within 5 years of the annuity purchase, Alison will receive full payments until the end of 5 years, when the payments will then be cut in half. Instead of a 50% spouse’s pension, Stephen could buy a two-thirds pension for Alison. This reduces the annuity depending whether the pension is based on good or bad health. For more information on this, please click on: FIXED-TERM ANNUITIES Rather than lock into a traditional annuity, Stephen and Alison could buy a fixed-term annuity. This provides them with a set income for a set period – typically 5 or 10 years. At the end of the period, they would then have the opportunity to buy a traditional annuity, hopefully with improved increased rates. For more information on this, please click on: INVESTMENT-LINKED ANNUITY Stephen and Alison could also consider an investment linked annuity. The income from this would be maintained based on the provider’s investment growth. Failure to achieve the return targets would result in a drop in income. For more information on this, please click on:

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