When the sharemarket dives you won’t have to worry. The annuity payments will continue regardless. Nor are they affected by interest rate movements.
Lifetime annuities deliver the best result in terms of returns if you live longer than the actuarial tables say you are likely to.
If you live to 110, the lifetime annuity will continue to pay an income stream. Annuities, particularly term-certain versions, are meant to be held for the duration.
You can have your capital returned at the end of the term or gradually as part of the regular paymentsSurat Stock. If you want to withdraw your annuity, in most cases your investment will be returned but it will be discounted.
The income stream will remain steady, so if you don’t index for inflation it will buy less each year as prices rise. You will not benefit from any sharemarket growth.Varanasi Investment
A risk with these products is that the company issuing the annuity will go broke, although Australian annuity-issuing companies are regulated and monitored.
How much income?
Take the example of an income stream for a 65-year-old from $100,000. It would vary depending on whether the person was male or female.
A lifetime annuity, with a death benefit of 100% of the purchase price payable to his estate or nominated beneficiary if he died within the first 15 years of the policy, would give a man an annual income of $6100.Jaipur Investment
A woman would get $5984. The implicit rate of return is about 6%pa. If $400,000 is invested, a 65-year-old man can expect to receive $24,420 a year and a woman $23,937.
A Challenger Liquid Lifetime annuity offers a voluntary withdrawal feature, so that not all your money is used up to pay the income stream.
You may decide that you want 100% of your purchase price back after 15 years (at 80 years of age)Jaipur Stock. In that case, a 65-year-old man or woman would receive $4169 a year, with an implicit earning rate of 4.25% a year.
If you want only 50% of your capital returned after 15 years, the annual income stream rises to $6458, implying an earnings rate of 4.1%.
Both lifetime annuities and 100% capital return annuities with terms of six years and above receive favourable treatment under Centrelink asset and income tests for the age pension and also for daily aged care fee subsidies and the seniors’ card.
It is best you discuss which product option suits you best – reversionary or non-reversionary, indexed or unindexed – with a financial adviser.
Worry-free investment.
There are no additional fees. They are built into the product.Simla Investment
The implicit earnings rates appear to be reasonable in the current low-interest-rate environment.
The issuer could go broke.
Challenger has a long track record.
Inflation will eat into the return, which means that each year it will buy less, unless you choose the indexed option.
My call
If you have longevity in your family, you may do well out of a lifetime annuity. If you tend to stay awake worrying about volatile share prices or interest rates, then an annuity will calm you.
An annuity certainly has a place in a retirement plan, although I would invest only a portion of my retirement savings in one.
Surat Wealth Management