Retiring: What Next?

Retiring can often feel like the start of a new era, but sorting out your pension pot and deciding whether to invest it into an annuity, can feel circumgyratory.

With so many different options and a number of annuity providers begging you to invest with them, it can be a bit overwhelming but this decision should not be taken light-heartedly. After all, this is your future.

When faced with the decision of whether to invest in an income drawdown or just a fixed term annuity, you can feel like someone is spurting random words at you but that doesn’t have to be the case.

The two mentioned are very different from one another and are just two of many ways you can invest your pension pot. We’ll start with an income drawdown.

An income drawdown differs from a secure annuity income but it is much more flexible. Although, with flexibility does come a higher risk and higher complexity. The risk is evident because when you invest in an income drawdown it means you can invest your money in a number of places. So, although you can invest it in many places it does mean some will do well and some may not, it all depends on its performance.

The positive of this though, is that you could benefit quite considerably from this investment but on the other hand, you could lose a lot too. If it does grow considerably, it could grow free of UK income and capital gains tax.

Now, a fixed term annuity. This type of annuity will provide you with a guaranteed income in regular intervals, which is why this option is a safer option compared to an income drawdown. This money is paid to you in exchange for your pension pot by the company that you invest in.

A typical period of a fixed term annuity is around 3 years or up until your 75th birthday but once this fixed term ends, you can use the guaranteed maturity sum in order to purchase another type of pension product or annuity. Also, if you were to unfortunately die before the end of the term you could get better death benefits than any other types of annuity.

So, as you see, two very different types of investments and each will appeal more to one retiree than another but the key to choosing which is best for you is to speak a professional who can talk you through your options so it doesn’t all sound foreign.

By speaking to a number of annuity providers, you will also be able to compare their annuity rates which will ultimately help you make the right decision too. Like we mentioned, you do not have to rush this decision, in fact, the longer you take over it, the more research and more comparison of companies you can make.

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Which Golden Girl will see you through your Golden Years?

‘Annuities’, ‘pensions’, ‘fixed term annuity’, ‘open market’…so many terms, so little time – and it all appears to be as clear as mud. In order to sift through this mud, we can use a somewhat tentative but highly entertaining analogy to assign each of the main annuity products its very own Golden Girl, based on their comparable features and suitability.

The Dorothy Zbornak

The Guaranteed Life Annuity

The Dorothy is the sensible, safe and grounded option; feet firmly on the floor, she is the no frills annuity that does what it says on the tin. The most conventional of annuities, the Guaranteed Life Annuity is a regular income for life which can also be tailored to a certain extent. It is best for those with stable personal circumstances who are looking for a low risk product that provides financial security without ongoing fuss or uncertainty.

The Rose Nylund

The Impaired Life Annuity

Fair and simple, The Rose is for those who have health or lifestyle issues that significantly affect their risk assessment on applying for the annuity. People with conditions that are deemed to lower life expectancy (think about Rose’s long and complicated medical history, including a triple bypass and numerous scares) are able to benefit financially from the enhanced rates of an Impaired Life Annuity.

The Blanche Deveraux

The Investment or Unit Linked Annuity

This is the go-getter. No stranger to flirting with danger or taking risks, the Blanche is an annuity with the potential to provide a profitable income for life as it is calculated in accordance with the stocks and shares your pension is invested in. Due to the nature of investment or unit linked annuities, payments will fluctuate but there will be a guaranteed minimum income as well as the option to convert to a conventional Guaranteed Life Annuity should it all get too much.

The Sophia Petrillo

The Purchased Life Annuity – with fully protected capital

The Sophia is best for those who are not as financially astute or responsible as they could be. It is a low risk guaranteed income which works in the same manner as the conventional annuity; the difference is that this annuity is purchased with a cash lump sum, rather than subsidised by the pension you’d usually entrust to your chosen company – and as there are no investment links, it is a safer option than some of the more interactive annuity products (see the Blanche). The bonus of having fully protected capital also makes the Sophia a good choice for parents concerned with their children’s future; you see, in the case of the gross income paid being less than the original investment, the remaining funds will be passed to heirs – which means Dorothy could be quids in!

So there you have it – the no nonsense guide to annuities. It’s always best to speak to an expert when considering the best option for you and your pension but at the very least, next time you discuss all things annuity, you can put a face to the name!

Which Golden Girl do you want seeing you through your Golden Years?

Higher pension income for those with poor health

After being diagnosed with a condition which could potentially reduce your life expectancy or quality of life, the first thing you want is peace of mind. A higher income from your pension annuity would help cover any necessary expenses, giving you one less thing to worry about so you can focus on your treatment and being with your family.

Should you be unfortunate to suffer from any of the following health problems, it is likely you are entitled to a higher income, sometimes referred to as an enhanced annuity;

  • Stroke
  • Heart attack
  • Diabetes
  • Multiple Sclerosis
  • High blood pressure

This is not an exhaustive list and in addition, certain prescription medications entitle you to a higher rate, so consult with your provider to see if you are eligible.

Depending on your profession, your provider may pay you a higher rate. For example, if you worked in manual labour, heavy industry or even certain parts of the country, you may be entitled to a higher rate.

If you are a heavy smoker or drinker, this may also push up your income but this is dependent on your chosen provider. When researching pension annuity providers, be sure to find one which best suits your needs.

The Downfall Of Delaying Your Annuity Plan

Though it is always a great idea to shop around before purchasing your annuity to ensure that you have found the best rate for you, putting it off too long in hope that the current market may improve is an incredibly risky venture.

Luckily for recent retirees, according to the daily mail rates have significantly improved by 5-8% since last year, however, choosing to delay an annuity purchase over a long period of time may mean that you could lose out on an income that takes decades to replace. Having a hopeful prospect for higher annuity rates is a great perspective to have. However, letting it take over your retirement plan could backfire, especially if the rates show no sign of improving.

Annuity provider MGM Advantage has recently calculated that if someone was to delay purchasing an annuity for as long as 2 years and no significant improvements in annuity rates have been made, then it could take as long as 41 years to make up for the lost income. If rates were to improve by 6% in that time, it would take roughly 19 years to make up for the lost income.

For advice on how you can enhance your current annuity quotes or for support and guidance during your search for a respectable purchased life annuity rate, talk to a specialist today.

When Should I Start Withdrawing Annuities?

An annuity is an investment contract that allows people to secure their post-retirement life. An annuity contract allows people to make contributions towards their annuity accounts and then to receive the wholesome annuity amount (the amount that has been grown with time and as a result of the contributions) at the time of withdrawing the annuity. When to start withdrawing is a very important question for every annuity holder just like knowing about the income drawdown rates as well.

While the withdrawing phase is the most important part of every annuity plan, it might be a bit complicated to handle if not done at the right time. Withdrawing early would mean that the earning might be taxed as ordinary income and one would have to pay a penalty on it. Such penalty is an addition of ten per cent on the withdrawal to the IRS. The annuity holder would have to pay a fee, referred to as a surrender fee.

The surrender fee goes to the manager of the annuity holder who then deals with all the legal procedures that are required being carried out. So, if you are one of the individuals who don’t want to pay a penalty or an additional fee just to start withdrawing annuities, you should wait till you reach the age of 59. After you have reached the age of 59 or more, you can utilise one of the two ways to withdraw your money: via a partial or a total lump sum, without being required to pay a tax penalty.

Since most annuities charge surrender fee, you should make the right decision about when to withdraw your money. However, you should discuss your options with your annuity manager to find out if you are not bound to pay a penalty if you want to withdraw early. Make sure to know about the special cases as well where a surrender charge can be waived such as in the death situation, continuous confinement and so on.

Dodging The Pension Pot Pickpockets’

Although there are many honest and reliable annuity providers around, it is vital that you keep an eye out for those looking to grab your pension pot and give very little or even nothing in return.

Here are just a few tips on how to avoid getting ripped off by providers who offer something that appears ‘too good to be true:

  • Always shop around – it cannot be stressed enough how important it is for those who are new to the concept of pension schemes or even those who have not dealt with the burden of low annuity rates to ensure they not only get the best possible advice available, but also place their retirement in the hands of a dependable company. Without shopping around, you could lose out on receiving a good pension income which could impact the quality of your life.
  • Take into consideration your personal circumstances – This does not mean only reviewing your health and physical and mental well-being, it also means looking at alternative pensions that you have and the rate of income that you will need.
  • Comparing quotes is a fantastic idea and a great way to find the annuity rate that is best for you. The best way to do this is to go through a reputable company to ensure that you have covered all the rates available.

These tips are designed with your best interests at heart and to ensure you a stress-free retirement process.

Things You Should Know About Annuities

A retirement annuity can assure a person a secure future. One can acquire a good retirement annuity plan in order to make sure that when he retires he and his family can survive without the support of others. If you have made up your mind about going for an annuity plan, you should glance over the information below which is basic yet highly essential for every retirement annuity seeker.

What is a retirement annuity?

It is a supplemental savings program which allows capital in the annuity to grow ‘tax-deferred’. A retirement annuity helps an individual to secure his future and make sure that when he retires, he can not only feed himself but his dependants as well. However, a retirement annuity can be utilized for numerous reasons depending on the person’s wishes.

What age should you apply for an annuity plan?

A person in their 20s can acquire a retirement plan. Though people don’t usually want to get an annuity plan before hitting their 30s. It should be noted that there are various retirement plan providers out there in the market who have certain age limitations for a person to attain an annuity. Annuity plans also vary depending on the age of the retirement annuity plan seeker and there is no guarantee that every plan can be attained by every individual.

When do you start receiving pension payments?

One has to keep making his monthly payments to the annuity provider while he is employed. Once he is retired, he can immediately start receiving his monthly pension payments. The payment amounts may however differ due to the financial situations of various sectors within the state and due to inflation etc.

Can you withdraw from a retirement annuity?

Yes, in the event you want to take a step back and delay your pension plans or to cancel the current pension annuity plan and to acquire another one from a different annuity plan provider. However, there is almost always a penalty that you have to take care before withdrawing from a retirement annuity.

Don’t forget to discuss your retirement annuity options as well as capped drawdown, flexible drawdown and other options with an expert before you acquire a plan. An annuity provider is the best option to give you a clear picture of what benefits you can get out of your annuity plan and exactly which plan you should go for.