When it comes to investing for retirement, the landscape has become increasingly uncertain. In this blog, we explore a solution that offers a holistic approach to retirement portfolios: lifetime annuities. Whether you’re thinking about your parents’ retirement income, or your own, annuities are worth a look. These secure investments can provide a regular income for life, safeguard against market fluctuations, and offer peace of mind throughout retirement.
With record-low interest rates, market volatility, and the rising cost of living, retirees are seeking strategies to ensure a regular income that keeps pace with their expenses. An Account Based Pension is a regular income stream bought with money from your superannuation when you retire. While traditional Account Based Pensions may meet some objectives, they are vulnerable to market volatility, inflation risks, and the potential to outlive retirement savings.
In today's ever-changing economic environment, when considering your retirement planning, it's crucial to prioritise regular income that can keep up with the cost of living while still maintaining access to your funds. According to a recent survey conducted by the National Seniors Association in March 2023, retiree's overwhelming response is the need for such income. That's where lifetime annuities come into play as a valuable tool in retirement planning.
So, what exactly are lifetime annuities? They are secure investments that provide you with a regular income for life in exchange for a lump sum investment. The beauty of a lifetime annuity lies in the fact that the income you receive is guaranteed, regardless of how long you live or how the investment markets perform. This assurance brings a sense of peace and security to your retirement years.
One retiree, Maree, found herself facing such concerns. At 67 years old, Maree had worked hard all her life and now aimed to make her savings, combined with the Age Pension, sustain her through retirement. However, with the rising cost of living, Maree quickly realised that she needed more than just the basics covered. To enjoy her well-deserved holidays, meals out, and entertainment, she estimated her annual income should be closer to $47,383, rather than the $33,000 needed for basic expenses.
Maree's worry was that she might outlive her retirement savings, considering she could expect to be retired for over 23 years based on life expectancy figures. She sought an extra source of guaranteed income that would bridge the gap between her income and the cost of living. However, like many retirees, she was concerned about the volatility of the share market and the potential loss of her hard-earned money.
Enter the lifetime annuity solution. By allocating $135,000 to a lifetime annuity, Maree could ensure that her basic needs were met no matter how long she lived, thanks to the additional income layer on top of the Age Pension. Modelling and fixed returns showed that her estate value increased by approximately $25,000 at life expectancy. This increase was a result of the guaranteed annuity's additional income, as well as the early retirement age pension entitlements, which offer concessions for clients investing in annuities.
Let's delve into the benefits of incorporating a lifetime annuity into your retirement strategy. Firstly, by drawing less from your account-based pension, you can extend the period in which you can stay invested in growth assets. This reduced need for selling during periods of poor market performance not only preserves your investments but also increases your Age Pension entitlements. Ultimately, this strategy extends the life of your investments, making them more resilient as you continue to live a fulfilling retirement.
One of the key advantages of lifetime annuities is the peace of mind they provide. With guaranteed income that keeps pace with inflation, you can rest assured that your purchasing power won't diminish over time.
Furthermore, unlike traditional annuities, lifetime annuities offer access to your capital if required. This flexibility allows you to address unexpected expenses or make adjustments to your financial plans as needed.
Another notable feature of lifetime annuities is the option to include your spouse as part of the investment. By doing so, you ensure that both you and your partner receive a regular income for life, providing financial stability and peace of mind for both individuals.
It's important to note that lifetime annuities are just one piece of a well-diversified retirement portfolio. They work best when combined with other investment vehicles and strategies tailored to your specific financial situation and goals. Consulting with a trusted financial advisor can help you determine the ideal allocation and structure for your retirement income plan.
Securing your retirement income is a top priority in today's uncertain economic landscape. Lifetime annuities offer a solution that provides regular income for life, safeguards against market volatility, and offers peace of mind throughout your retirement journey. By diversifying your portfolio and incorporating a lifetime annuity, you can enjoy the benefits of guaranteed income, protection against inflation, and the flexibility to access your capital when needed.
Remember, every individual's financial situation is unique, so it's essential to seek professional guidance to develop a personalised retirement strategy that suits your needs.
Would you like to learn more about annuities? Or are there other retirement planning issues you’d like to discuss? Call us anytime on (02) 8268 2900 for an obligation-free chat. We’re always here to help.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Please consider whether the information is appropriate to your circumstance before acting on it and, where appropriate, seek professional advice.