When it comes to retirement, we are all uncertain about what the right kind of investment vehicle should be. Do we take out an annuity or drawdown from an investment? Both are viable options, and you could even have a combination of both depending on the size of your pension pot, your retirement expectations, life expectancy and risk appetite.
An annuity is a product you buy with your retirement money in exchange for a guaranteed fixed monthly amount for a fixed term or for life. It provides certainty and stability during retirement. Usually those with a limited pension pot prefer to buy an annuity to guarantee an income without having to worry about the future.
Pension drawdown allows you to keep your retirement money invested, and income is determined by the performance of the funds invested or your needs. It is not guaranteed for life, but you do have the choice of withdrawing as much as you need at any given time, subject to funds being available. When you die, the remaining balance will go to your beneficiaries. *
Annuities
- Annuities provide the guarantee and security of a fixed income for life or a fixed term and are set in stone. You cannot change the monthly pay out, or the funds that they are invested in. Once invested in an annuity, there is no going back. It is important to select the right kind of annuity according to your retirement needs.
- There are no worries about running out of money, but your monthly income could be lower because it is not subject to market performance. There is no inheritance to pass on after you die unless it’s a joint life annuity where your partner or spouse will continue receiving an income until they pass on. Your children will receive nothing.
Pension Drawdown
- Pension drawdown is considered more flexible than an annuity. You can change the amount withdrawn every month and you have the benefit of your money still being invested and earning a good return. You can even change the funds invested according to the market.
- You control your pension pot and how it is to be distributed.
- It is exposed to the volatility of markets. You have the advantage of earning good returns but are also exposing your pension to market risk. It is ideal to consult with your financial adviser if you choose pension drawdown.
- Ideal vehicle to protect your wealth and allows you to nominate beneficiaries who will inherit the remainder of the funds when you die.
Both options are suitable sources of retirement income, but it will depend on your financial situation and needs at retirement, and if you want to pass on an inheritance to your children. Contact your deVere adviser to assist with choosing the correct retirement options for you. [email protected]
Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.