Discussion
Been on drawdown for last nearly seven years. Taking around 5% and so far all good and strategy is working well.
State scheme starts in three years and my advisor has discussed moving some of my funds (39%) to provide an annuity (Joint Life second death level guaranteed 30 years) of around £20k.
This effectively gives a return if 6.5% which is attractive and gives me a good guaranteed base going forward.
So I’m genuinely thinking of going ahead and just wondered if anyone had any thoughts or examples of other things to consider. Thanks
State scheme starts in three years and my advisor has discussed moving some of my funds (39%) to provide an annuity (Joint Life second death level guaranteed 30 years) of around £20k.
This effectively gives a return if 6.5% which is attractive and gives me a good guaranteed base going forward.
So I’m genuinely thinking of going ahead and just wondered if anyone had any thoughts or examples of other things to consider. Thanks
craig1912 said:
level
craig1912 said:
So I m genuinely thinking of going ahead and just wondered if anyone had any thoughts or examples of other things to consider. Thanks
1. 100% Drawdown portfolio
2. Drawdown portfolio mixed with a level annuity
3. Drawdown portfolio mixed with an inflation linked annuity.
Given that inflation tends to be the biggest challenge to retirement income sustainability, as might be expected, we found that level annuities didn't improve outcomes for our imaginary client. Therefore, I'd at least ask your adviser to model inflation-linked annuity scenarios in something like Timeline before deciding to proceed with a level annuity.
What is the problem you are trying to solve?
One observation might be that those numbers suggest that you have a pot that is probably large enough to weather most storms and don't *need the stability of the annuity component - most of which dies with you.
i.e. If you were to have ~3-5 ish years in cash equivalents anyway, then that might be giving you the stability you're looking for instead?
One observation might be that those numbers suggest that you have a pot that is probably large enough to weather most storms and don't *need the stability of the annuity component - most of which dies with you.
i.e. If you were to have ~3-5 ish years in cash equivalents anyway, then that might be giving you the stability you're looking for instead?
Well, if you didn't increase your drawdown in line with inflation and took out less than it's annual growth (and 5% has been less for several decades), then it will last forever
As said, you need to be looking at annuity rates with some level of inflation built in, even if it's only 3% - 4%
I have a minor part of my pension in annuity, I went for annual increases, surviving spouse and a guarantee period. That does bring down that attractive headline figure somewhat
As said, you need to be looking at annuity rates with some level of inflation built in, even if it's only 3% - 4%
I have a minor part of my pension in annuity, I went for annual increases, surviving spouse and a guarantee period. That does bring down that attractive headline figure somewhat
Thanks for the responses - my advisor just gave it as an option and asked me to just have a think about it. One reason is that it could potentially reduce inheritance tax.
I don t have much in cash, income is provided from a series of structured products which cover around seven years ahead and they are working well.
I get the inflation eating into the £20k but was amazed how much more expensive buying an escalating annuity is. I can see why getting rid of the triple lock is attractive for HMGov.
Having thought about it and given my wife has an inflation linked FS pension, we will both have full State pensions I think I ll carry on as is.
Good to get others thoughts on it though
I don t have much in cash, income is provided from a series of structured products which cover around seven years ahead and they are working well.
I get the inflation eating into the £20k but was amazed how much more expensive buying an escalating annuity is. I can see why getting rid of the triple lock is attractive for HMGov.
Having thought about it and given my wife has an inflation linked FS pension, we will both have full State pensions I think I ll carry on as is.
Good to get others thoughts on it though
Edited by craig1912 on Monday 13th October 14:58
craig1912 said:
Thanks for the responses - my advisor just gave it as an option and asked me to just have a think about it. One reason is that it could potentially reduce inheritance tax.
I don t have much in cash, income is provided from a series of structured products which cover around seven years ahead and they are working well.
I get the inflation eating into the £20k but was amazed how much more expensive buying an escalating annuity is. I can see why getting rid of the triple lock is attractive for HMGov.
Having thought about it and given my wife has an inflation linked FS pension, we will both have full State pensions I think I ll carry on as is.
Good to get others thoughts on it though
Given the fixed income you have in place your approach sounds good to these (uneducated) ears. I'd suggest that the reason it would remove IHT is because you'd end up with less capital and there's a good chance that you'd not get sufficient income in the meantime to compensate for that.I don t have much in cash, income is provided from a series of structured products which cover around seven years ahead and they are working well.
I get the inflation eating into the £20k but was amazed how much more expensive buying an escalating annuity is. I can see why getting rid of the triple lock is attractive for HMGov.
Having thought about it and given my wife has an inflation linked FS pension, we will both have full State pensions I think I ll carry on as is.
Good to get others thoughts on it though
Edited by craig1912 on Monday 13th October 14:58
SunsetZed said:
Given the fixed income you have in place your approach sounds good to these (uneducated) ears. I'd suggest that the reason it would remove IHT is because you'd end up with less capital and there's a good chance that you'd not get sufficient income in the meantime to compensate for that.
Would concur with your IHT thought. On behalf of a relative in a care home ,as Attorney I took out an Immediate Needs Annuity for her but obviously the saving on IHT wasn’t the driver of this and to be fair to the FA I used it wasn’t even mentioned.
With the forthcoming pension IHT changes, I've been wondering about doing this. Effectively I can discount the annuity cost by 40%.
If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
Sheepshanks said:
With the forthcoming pension IHT changes, I've been wondering about doing this. Effectively I can discount the annuity cost by 40%.
If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
Sounds like you are in a similar position to us. I believe the income would be husband until he dies and then wife.If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
I'm not a Financial Advisor, just a simple soul but so far I've just taken lump sums, not an annuity.
My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
craig1912 said:
Sounds like you are in a similar position to us. I believe the income would be husband until he dies and then wife.
Yes, it would be too good to be true if tax could be re-apportioned like that! Think the French do it on a household basis - that'd be good for us.Bit of an error on my part in retrospect to not start paying into her SIPP earlier. She does have a hefty value in an ISA. I guess it's broad as it's long - she was mainly a 20% tax payer, and she's into 20% in retirement.
Skyedriver said:
I'm not a Financial Advisor, just a simple soul but so far I've just taken lump sums, not an annuity.
My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
I think that rationale makes sense. It's six and a half dozen.My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
For me, I took the annuity route. I've got more than a decade before state pension but seeing the peaky stock market and high gdp debts in all developed nations, I felt I liked to crystallise some gains. This helps me secure a higher base income since I am already retired and have sufficient funds. The majority of my investments are still in global diversified equity.
Due to being in the younger age for annuities, it is expected that the rate would be lower at just over 6% fixed but 100% transferred to my spouse on my passing. I could have got 4.3% with RPI but I am happy to take the higher income now as this is just part of the plan.
craig1912 said:
Sheepshanks said:
With the forthcoming pension IHT changes, I've been wondering about doing this. Effectively I can discount the annuity cost by 40%.
If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
Sounds like you are in a similar position to us. I believe the income would be husband until he dies and then wife.If it's a joint annuity, can the income generated be split between husband and wife, or is it husband until he dies, and then wife?
Issue I've got is I'm maxxing out what I can take without paying 40% tax, but wife still has quite a bit of headroom. Barring a horrible market crash, I might never get through my SIPP.
Man of gas said:
Actually it s the person who buys the annuity first and then whoever lasts the longest, presumably not just the husband buying the annuity in these days of equality;-)
We were referring to buying the annuity from the husbands SIPP so we can’t buy an annuity for the wife.leef44 said:
Skyedriver said:
I'm not a Financial Advisor, just a simple soul but so far I've just taken lump sums, not an annuity.
My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
I think that rationale makes sense. It's six and a half dozen.My thoughts
If I pop off in the next few years the money is lost in an annuity.
If I survive to 85 or whatever how much money wilI I actually need, sitting in a chair, eating biscuits, discussing my catheter bag, and awaiting the inevitable.Better spending it now.
For me, I took the annuity route. I've got more than a decade before state pension but seeing the peaky stock market and high gdp debts in all developed nations, I felt I liked to crystallise some gains. This helps me secure a higher base income since I am already retired and have sufficient funds. The majority of my investments are still in global diversified equity.
Due to being in the younger age for annuities, it is expected that the rate would be lower at just over 6% fixed but 100% transferred to my spouse on my passing. I could have got 4.3% with RPI but I am happy to take the higher income now as this is just part of the plan.
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