How to evaluate Your Personal Circumstances.
Choosing between a Living Annuity and a Guaranteed Annuity depends on several personal factors, including:
- Your health, age, and life expectancy
- How much you’ve saved
- The lifestyle you want to maintain
- Your preference for a secure vs flexible income
- Your confidence in making investment decisions
- Needs of a financially dependent spouse
- Whether you’d like to leave an inheritance
- Current interest rates, inflation, and market conditions
Can You Outlive Your Savings?
The main risk with a Living Annuity is longevity risk—outliving your savings. To reduce this risk, many retirees aim for a drawdown rate of 4% or less. A lower drawdown rate increases the chance of your savings lasting through retirement.
Use our Living Annuity Calculator to help you estimate a sustainable drawdown rate based on your personal circumstances and expected life expectancy.
Understand Your Investment Risks
A Living Annuity comes with market risk. Poor long-term returns or needing to withdraw during a market dip can shorten the life of your capital. If you can reduce your drawdown or rely on other savings during market downturns, you’ll reduce this risk.
Living Annuities work best if:
- You are confident they will fund your lifestyle long-term
- You want the flexibility to adjust income
- You want the potential to leave behind unused capital
Other Important Considerations
Your Health
If you’re in poor health, a Living Annuity may be preferable since it gives you access to more income earlier—and your capital doesn’t die with you.
Where You’ll Retire
If you plan to emigrate, a Living Annuity allows more flexible access and the ability to repatriate funds quicker than a Guaranteed Annuity.
Your Age
Age plays a role too. If you retire earlier, a Living Annuity may offer better value than a Guaranteed Annuity, which typically pays less the longer your life expectancy. As you get older, the Guaranteed Annuity may become more attractive.
Note: With a Living Annuity, you always have the option to convert to a Guaranteed Annuity later.
Get the Right Advice
This is one of the most important financial decisions you’ll make. Use trusted retirement planning tools or speak with a licensed financial adviser. Make sure their advice is unbiased and separate from product sales, and always understand how they’re being compensated.
Want a clearer picture of which annuity is right for you? Try our Living Annuity Calculator or request a free comparison report from an Investonline adviser.
