Do I have to buy an annuity?

Do I Have To Buy An Annuity?

So, you’ve turned sixty-five and you’re ready to put your feet up, retire and take it easy from now on. That also means you’re about to get access to that beautiful pension you’ve spent your entire working life building up - how exciting!

Now you’re allowed to spend all that money, you’re probably wondering what to do with it, and one of your biggest questions might be; should I buy an annuity? Do I have to? If that’s the case, then stop worrying right now. We’ve got the answer, clearly and carefully explained.

Forget poring over textbooks, Googling for answers that never come, and falling asleep as a monotonous voice tries to get you to understand your financial situation. With our help, you can find out today whether or not you need to buy an annuity, as well as your top considerations when making that decision.

What is an annuity?

Typically provided by a life insurance company or similar, an annuity is a financial product you can choose to purchase with your pension when you retire, which gives you a guaranteed and regular income for the rest of your life.

The payments you receive as part of your annuity plan are obtained from three places: interest gained from funds, the return of your paid capital, and the transference of remaining capital from those who die earlier than anticipated.

Payments can be received at various intervals, most commonly every month but also provided every three months, every six months, or annually, depending on your preferred frequency.

You can also decide whether you would like to start being paid immediately or if you purchase a deferred package, at a later date of your choosing, adding some flexibility to the mix if you have enough money to keep you going for the time being.

Do I need an annuity?

Financial experts believe that annuities are a useful layer of protection against the risk of outliving your wealth or running out of your pension, especially as fluctuations in the money market are so frequent, and recommend them as a positive financial investment.

Apparently, those who decide to take out an annuity plan tend to be more content and relaxed, safe in the knowledge that their income is assured for whatever term they have selected, allowing them to get on with their lives without money troubles hanging over their heads.

Managing your income by investing in an annuity will help you to create and stick to a budget, especially if you don’t have a second or backup source of retirement income, which can be useful as we get older and our minds start to wander more.

If there’s no chance you’ll ever run out of money, first off… congratulations. Secondly, an annuity probably isn’t for you, because you’re already assured a lifetime income, so seeking out a plan to get one seems pointless and reductive.

Should you be scared of decisions you can’t take back, you might want to rethink your plan to buy an annuity. Once you’ve given that money to the insurers, it’s gone, and you can’t change your mind.

Building annuities into a fully-formed retirement plan is a good decision, as they assure a high level of withdrawal (depending on your personal circumstances) without the chance of depletion.

If you’d like to spend some money in the here and now on vacations or treats for you and the family, but still make sure you’re set up for life after you’ve gone on a well-earned spending spree, you should investigate these plans.

• Click Here To Find Out How Much An Annuity Will Cost

Deferred Annuities

It might be that you’d like more money in your early retirement to fund or explore new hobbies, or perhaps you’d prefer an extra bit of cash towards the end of your life to cover any treatment or care facility costs.

When you fall into the latter category, it might be worth waiting to buy an annuity or picking out a deferred payment plan. This assures a higher payout, as you will receive fewer payments during the remainder of your life.

If you still cannot decide if an annuity is for you, or need help deciding which one to opt for, we would recommend consulting a life annuity advisor who will help you to make those important decisions and provide some much-needed context to the situation.

What types of annuities are available?

Every annuity is different, and it is vital that you understand the benefits and risks of each before you choose to make a commitment.

Before you begin your research, you should decide whether or not you would like to nominate a beneficiary to continue receiving payments after you die, as well as whether you want to be paid regularly or receive payments that will increase each year.

Life Annuity

Life annuities provide you with financial stability for the rest of your life. If you were to buy an annuity at a hundred thousand dollars aged sixty-five, receiving five hundred dollars a month, you would have received your 100k back by aged eighty-two but would continue to receive the five hundred dollars a month payments until you die.

Term-Certain Annuity

Contrastingly, a term-certain annuity, as the name suggests, provides guaranteed income in the same way, but for a fixed period of time, or a ‘term’, as opposed to payments until you die. If you pass away unexpectedly before this term ends, your nominated beneficiary or your estate will receive the balance of your guaranteeed payments or a lump sum of the remainder.

Variable Annuity

Unlike the first two choices, the insurance provider of a variable annuity can invest your money in other financial products that offer variable returns, such as stocks, shares, and equities. You receive a fixed income as normal, with the addition of a variable income depending on the status of the investment, so it’s more of a flexible situation than the above.

How is your annuity income decided?

A number of factors will impact on the amount of monthly money you are entitled to, a few of which might seem trivial or unnecessary, but will impact upon your life expectancy in some way shape, or form and therefore on your entitlements.

Your gender and age when you purchase the annuity are the primary considerations of the insurance company, as well as the amount of money you have to invest in the annuity and the type of payment plan you opt for.

Likewise, the length of time you would like to receive guaranteed payments, the interest rates at the time and the provider you opt, for will all help calculate what you’ll receive.

How much does an annuity cost?

As you might expect, the price of an annuity will entirely depend on the provider, with some offering you different monthly income payments for the same kind of annuity and a similar upfront payment.

Providers calculate your amount of designated income per month (or whatever frequency you are paid at) depending on the above assortment of factors, some of which are up to them and some of which are pre-determined by your personal details.

A fixed and a variable annuity will normally have different monthly payments, with life-only, joint-life, and term certain annuities all costing different amounts and offering different payouts.

Other Sources of Income

Of course, an annuity isn’t the only way to support yourself and see your way through retirement comfortably: there is a range of other money management services and pension plans available from which to choose.

Researching thoroughly is your key to success: look into all of your possibilities, consult an expert who can translate all of the legalese into understandable, simple language, and get numerous quotes from a wide range of providers.

By expanding your horizons and opening yourself up to other possibilities, as well as reaching out and asking for help you are arming yourself with the knowledge you need to make a decision that stands to benefit you the most.

• Click Here To Find Out How Much An Annuity Will Cost