How to Find the Best Annuity

May 22

How to Find the Best Annuity

If you’re thinking about saving for retirement, you may have come across the term ‘annuity’. An annuity is a form of retirement income. People purchase annuities with the money they have saved into their pension, and the annuity then pays out this money in installments throughout the person’s retirement years.

Annuities have both advantages and disadvantages. Because you need to buy an annuity, the value of the annuity will determine how much income you are able to receive from it in retirement. People with larger pensions will get more of an income. People with smaller savings pots will find that their annuities are less valuable.

Different Types of Annuities

There are several different types of annuity. The main two options are fixed and variable tracker annuities, the former of which pays out a consistent sum throughout retirement, and the latter of which pays out an income which is linked to interest.

Within these two main types there are many distinctive sub-types, each with their own pros and cons. These include:

  • Value Protected
  • Impaired and Enhanced Life
  • Investment Linked
  • With-Profits
  • Unit Linked
  • Purchased Life

Fixed Annuities VS Variable Annuities

The amount of income you will receive from your annuity, and for how long, will depend on which type of annuity you decide to buy. Fixed annuities are more dependable, but you run the risk of missing out on seeing your income rise in line with interest. But variable or tracker annuities can be risky, as falling interest rates can erode your savings.

Some annuities provide the best of both worlds. For example, if you purchase a With-Profits annuity, a portion of your money will be held back in the good years and paid out to you in the bad years. This helps to ensure that your income remains stable.

Dependable Income for Life

The type of annuity you should choose should also depend on how long you expect to live after you retire. If you expect to live for less time, e.g. if you have health concerns, you may wish to opt for the higher income of a fixed term annuity. However if you expect to live for longer, or an indeterminate amount of time, it would be wiser to choose a conventional annuity which promises a fixed income for life. The payments may be a little smaller, but you will never run out of money. To find out what kind of annuity would be best for you, try this calculator at www.nononsenseannuities.co.uk.