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What is an Annuity? Secure Your Income After Retirement

There are so many duties that you have to perform throughout your life. With retirement approaching, you might be a little worried about how you’ll make your living when you have to leave your job. You probably have started planning things, even if that time is not so near. If you haven’t yet planned anything, then you must start soon. That will make sure that you don’t get in a rush when the time comes. 

You would want things to go as smoothly as they can. There might be many options that you’re considering. Suppose, your pension might not be able to support the lifestyle that you had while you were still working. This happens when there are gaps in your National Insurance payments. No matter what the case is, you’d want to have some peace of mind after retirement. For that, you can consider annuities, if you haven’t already. They can turn out to be a good option for you if you proceed accurately. So, let’s get to know what is an annuity.

What is an annuity?

You would probably have saved a good amount of money in your retirement fund. Now, when it’s time to take it out, there are two things you can do — either keep this money and spend it on your needs, or invest it somewhere. Generally, you would probably want to go for the second option, and rightfully so. 

After all, the possibility that you may run out of savings, during your lifetime, is scary. You would never want to be in a circumstance like that. Now, that is something an annuity can help you out with. Simply speaking, it is an insurance product that you buy with your savings. 

You can use either all of your money or a part of it for this purpose. In return for that, you’ll get a fixed amount every month, based on how much you’ve spent. So, the more you want to earn each month, the more you’ll have to invest in this product. Now, there are different options available to you when it comes to annuities. You might want to know more about them before making a decision. It must be noted here that if you withdraw money earlier than your annuity matures, you’ll get penalties.

How long would they last?

Among other things, you might also want to know how long this arrangement will last. In that case, you have two options — lifetime and fixed term. As the name suggests, the first one provides you with monthly payments for a lifetime. The very first thing that must be pointed out here is that you would only have access to the amounts that’ll be paid to you per month. 

If you want the rest of the money, you’ll have to withdraw it by paying a penalty. So, it is a disadvantage in that matter. After all, you never know when you’re going to need the rest of the money. The best way to avoid such a situation would be to invest more so that you get paid higher amounts. 

There are two types you can find in lifetime annuity — basic and investment-linked. As for the ones with a fixed term, they generally last up to 5 years, at the minimum and 10 years, at the maximum. So, what happens after it matures? In that case, you can simply withdraw your earnings. Further, you might want to also look for a higher-paying annuity than the last one. That way you’ll be able to steadily increase your retirement income.

What happens to a lifetime annuity after your death?

In case you have bought the product for a lifetime, it has its benefits. You can make someone a nominee for the money that you receive from it. Then, in the event of your death, that person would continue to receive the payments. This would be a perfect option if someone is dependent on you. Further, you’d be able to stay free of any worries throughout your retired life.

Which type of lifetime annuity should you choose?

As you know, there are two types you can choose from. If you go for a basic one, it will provide regular payments each month, whereas that won’t be the case if you go for one that’s linked to an investment. The payments may keep differing with the value of the stock or share. So, it could fall and as a result, you’d get a lower monthly payment. 

However, it could also rise higher than what it is currently. If that happens, needless to say, you’ll receive much more monthly amounts than you used to get at the start. So, it has the potential to turn into a risky venture, as well as a benefit. You can go for this option if you’re willing to take risks. Otherwise, you must stick to the basic one for a stable income. 

Can you buy one Annuity jointly with someone?

Are you a couple looking for a fixed income after retirement? In that case, receiving the payments jointly probably won’t seem to be a bad idea for you. If you’re looking for such an arrangement, there is one. Among other types of annuities, you can also choose one that offers a fixed income to you and your partner. 

However, both persons have to be alive for this arrangement to work. Otherwise, it would be shut down, if one of them dies. Also, you’ll find that they offer you a lower rate of income as compared to other types. So, you might want to consider it carefully before you choose this arrangement.

Are there any arrangements available for a short time?

When buying an annuity, people have various requirements. Everyone doesn’t want to buy based on the usual term. You might be looking for an arrangement available for a shorter term than that. In that case, you won’t have to be disappointed. You can get short-term annuities that last up to 5 years. They can provide you with the same guarantees that other arrangements do when it comes to income.

What if you need a high income due to health problems?

Practically, it is not abnormal for a person nearing retirement to be facing problems in health. And, they only increase with time, and so do your expenses along with them. You would want to be able to keep up with all the costs. Getting the best treatment for your health problems would require a good amount of money. In this case, you’d want an annuity that pays the kind of income you need. Fortunately, you won’t have to return empty-handed. In this type of situation, what you need is an enhanced annuity. They pay significantly as compared to the basic ones. They can be a great way to meet your medical expenses if you buy the right one. Consult a financial adviser if you need help in this matter.

How do you choose the best Annuity option for yourself?

There are so many different types you can choose from when it comes to annuities. It might be a little confusing sometimes to decide which one you should buy. You can’t afford to make any mistake in this case, as it’s quite a serious matter. You’d obviously want to get as much out of it as you can. So, it wouldn’t be wise to proceed unless you’re completely sure. 

Taking into account the following considerations would make it simpler for you to find the best option:

  • The period you want it to last

Before choosing an annuity, you must consider how long you want its term to be. There is a significant amount of difference that this small aspect can make. So, you must take it into account by all means while considering. There are various benefits that you can find.

  • What do you want to happen to Claim after your death?

As you know, there are arrangements in which you can name someone as the nominee to your income. But, there must be someone whom you want to receive the money after you die. And, it would obviously have to be a lifetime arrangement then.

  • How much risk are you prepared to take?

Is it simply a fixed income every month, with no risks? Then, you must choose a basic annuity. Otherwise, depending on the risk you’re willing to take, there are many investment-linked options to choose from. If you go for them, consult an adviser, if required, make sure they offer the kind of prolific development that you’re looking for.

  • How do you want to be paid?

You will also get many options regarding the way you want to receive the payments. For example, you can receive them jointly with your spouse.

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