After a couple of short weeks and a long Easter break,I’m betting many of you are looking at the pile of uneaten chocolate in your kitchen and hoping you’ll never see another foil-wrapped egg again. But before we get too far into April,there’s one more egg you should give some thought to:your nest egg.
If you’re not sure how an annuity works and if it’s right for you,here are some tips.Michael Howard
Oeuf-ul puns aside,thinking about our income in retirement is something that takes up an increasing amount of brain space as we get older,especially if we start to worry we may not have enough to live on. For most of us,our main source of income once we finish work will be our superannuation,supplemented by the age pension,with perhaps some dividends or rental income.
However,when it comes to retirement income,there’s another option that doesn’t get a lot of airtime – annuities.
Annuities are a fixed income stream financial product where the user is provided with a set guaranteed income over a period of time in return for their investment. For example,you could invest $100,000 for a fixed term (typically between 1 and 50 years) and you would be paid a set amount of interest at a regular interval for the duration of the annuity. At the end of the term,you would receive back the amount you invested. Alternatively,you can draw down on your capital to receive a higher payment.
While set-term annuities are a common option,more popular among retirees are lifetime annuities,which pay you a guaranteed income for as long as you live.
What’s the problem?
Despite the level of concern about having enough money in retirement,annuities are often overlooked by retirees. A Treasury from last year revealed just 3.5 per cent of assets held in superannuation pension accounts are in annuities. The paper also noted retirees were “reluctant to purchase annuities”,largely due to a lack of information,their relative lack of flexibility and significant upfront investment.
What you can do about it
If you think an annuity might suit you,or if you’re just curious,here are some things to consider:
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.