Annuity Rates - How Timing Can Reduce Your Income
The timing of an annuity purchase could mean 43% less income for a pensioner buying an annuity today, making a significant difference to the amount income you receive over your lifetime compared to buying an annuity at other times.
Annuity rates have been decreasing for many years now and this has directly reduced the buying power of a pensioner's pension fund.
In addition many pensioners remain invested in equities right up to the time they purchase an annuity at retirement and over this same period equities have also decreased.
As an example, if a male was aged 65 four years ago with a fund of £100,000 he could have purchased an annuity providing an income of £7,500 pa or a rate of 7.
5% for his lifetime benefiting from relatively high annuity rates and equities at that time.
He could expect to live 17.
6 years and over his lifetime receive an amount of £132,000 before tax from this annuity.
Many people do decided to delay taking their retirement benefits and continued working for a period of time.
In our example, if he delayed taking benefits for another four years this decision would have reduced the income he could have received over his lifetime by an incredible 43%.
The reason for this is due to timing and the combination of both equities and annuity rates decreasing at the same time.
Four years later at age 69 this male would have found that equities had reduced his pension fund from £100,000 down to £77,100.
Although annuity rates increase with age, due to the severe decreases the best annuity will only pay a 69 year old a rate of 6.
7%, even less than a 65 year old four years earlier, which means the income from the smaller fund size will be £5,165 pa.
In addition as he is now four years older his life expectancy has reduced.
Based on the national average at age 65 he could look forward to living for 17.
6 years, however, now at age 69 this has reduced to 14.
6 years so he has less time to enjoy less income.
The total income he could expect to receive over his lifetime has now reduced to £75,409, a reduction of £56,591 due to his decision to delay purchasing an annuity for four years.
In order to recover this lost lifetime income he could have invested more into his pension fund.
In order to do this he must achieve a higher income level for the remaining 14.
6 years and this would be approximately £9,041 pa.
To achieve this he would need a fund of £134,941 or to invest a further £59,532 into his pension fund.
The timing of an annuity rates purchase, whether a pensioner continues working or not, can make a significant difference to their lifetime income and quality of life.
Annuity rates have been decreasing for many years now and this has directly reduced the buying power of a pensioner's pension fund.
In addition many pensioners remain invested in equities right up to the time they purchase an annuity at retirement and over this same period equities have also decreased.
As an example, if a male was aged 65 four years ago with a fund of £100,000 he could have purchased an annuity providing an income of £7,500 pa or a rate of 7.
5% for his lifetime benefiting from relatively high annuity rates and equities at that time.
He could expect to live 17.
6 years and over his lifetime receive an amount of £132,000 before tax from this annuity.
Many people do decided to delay taking their retirement benefits and continued working for a period of time.
In our example, if he delayed taking benefits for another four years this decision would have reduced the income he could have received over his lifetime by an incredible 43%.
The reason for this is due to timing and the combination of both equities and annuity rates decreasing at the same time.
Four years later at age 69 this male would have found that equities had reduced his pension fund from £100,000 down to £77,100.
Although annuity rates increase with age, due to the severe decreases the best annuity will only pay a 69 year old a rate of 6.
7%, even less than a 65 year old four years earlier, which means the income from the smaller fund size will be £5,165 pa.
In addition as he is now four years older his life expectancy has reduced.
Based on the national average at age 65 he could look forward to living for 17.
6 years, however, now at age 69 this has reduced to 14.
6 years so he has less time to enjoy less income.
The total income he could expect to receive over his lifetime has now reduced to £75,409, a reduction of £56,591 due to his decision to delay purchasing an annuity for four years.
In order to recover this lost lifetime income he could have invested more into his pension fund.
In order to do this he must achieve a higher income level for the remaining 14.
6 years and this would be approximately £9,041 pa.
To achieve this he would need a fund of £134,941 or to invest a further £59,532 into his pension fund.
The timing of an annuity rates purchase, whether a pensioner continues working or not, can make a significant difference to their lifetime income and quality of life.
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