Are annuities included in your retirement income plans?

Ensuring financial stability in your golden years

An annuity converts pension savings into a regular income, providing financial stability in retirement. Annuities deliver guaranteed income, ensuring that retirees do not outlive their savings. Unlike drawdown pensions, which depend on market performance, annuities offer peace of mind through predictable payments.

But should annuities be included in your retirement income strategy? The answer depends on your circumstances, health, and financial goals. To assist you in deciding, here is an overview of some key aspects to contemplate when considering annuities as a part of your retirement plan.

Enhanced life annuities for increased payouts
One lesser-known reason for annuities is their potential for enhanced rates for individuals with specific health conditions. Common conditions such as diabetes, heart disease, or a history of smoking may qualify you for an enhanced or impaired life annuity. Insurers calculate life expectancy when determining rates, meaning those with lower expected longevity might benefit from increased payouts.

For retirees facing health challenges, it’s worth considering enhanced annuities if you have any underlying conditions. To maximise your retirement income with medical evidence, we can compare quotes from various providers.

Fixed-term and temporary annuities
If committing to a lifetime annuity feels like a step too far, fixed-term annuities may offer an alternative. These products guarantee income for a specific number of years, such as five or ten, providing retirees with greater flexibility while still enjoying consistent payments.
Temporary annuities can be a valuable tool for certain situations, such as bridging the financial gap before reaching State Pension age. They are also beneficial if you wish to wait for improved financial markets or are postponing long-term financial decisions until later in retirement.

Phased purchasing of your pension pot
Not all of your retirement funds need to be locked into an annuity at once. Phased purchasing enables you to convert part of your pension pot into an annuity while leaving the rest invested. This method can balance guaranteed income with the potential for market growth over time.
Additionally, delaying the purchase of annuities for a portion of your savings may enhance your income later on. Annuity rates typically rise with age due to reduced life expectancy and potentially the onset of health issues. However, bear in mind that market performance can fluctuate, and there is always a risk of your remaining savings diminishing.

Considerations for financial planning actions
When it comes to annuities, careful financial planning is essential.

Here are some steps to assist you in making your decision:

Evaluate the market: Annuity rates can differ considerably, so it’s wise to compare options to secure the best deal.
Assess health-related benefits: If applicable, an enhanced annuity could significantly boost your income.
Decide between fixed-term and lifetime options: Flexible solutions, such as temporary annuities, may be beneficial if you’re unsure about long-term commitments.
Compare providers: The “open market option” enables you to obtain quotes from various providers instead of remaining with your pension company, which may enhance your income.
Seek professional advice: Annuity decisions are often irreversible, making expert guidance essential for navigating the complexities of retirement planning.

This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested.