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If you want a fixed income in retirement, an annuity could be for you.

Annuities are an increasingly appealing option for many Australian’s approaching their retirement, as they can give you an additional layer of protection in retirement above the Age Pension, by providing guaranteed income payments. They act as a safety net helping to ensure that you will receive income for a chosen term or your lifetime, regardless of how investment markets perform.

An annuity can help to achieve these goals by providing guaranteed income payments that are regular and dependable. It can help you cover your essential expenses and maintain your standard of living in retirement by acting as the foundation of your retirement plan.

How it works is you invest a lump sum amount and in return you receive guaranteed income payments over a chosen term or for your lifetime.

Income may be paid monthly, quarterly, half yearly or yearly. You usually need to invest at least $10,000. Annuities bought with super money must pay you a certain percentage of the balance, based on your age.

An annuity bought with super money must pay you a certain percentage of the balance, based on your age. The ATO website has more information about minimum annual payments.

Types of annuity

  • Lifetime
    These pay you an income for the rest of your life.
  • Fixed term
    These pay you an income for a set term, such as 10 years.
  • Life expectancy
    These pay you an income for your life expectancy.

Annuities may be deferred or indexed. Deferred annuities start income payments at a future date, such as when you turn 80. Indexed annuities increase payments annually by an agreed percentage (for example, 5%), or in line with inflation.

The Pros

  • A regular guaranteed income regardless of how share markets perform.
  • Suitable for someone who doesn’t want to bear investment risk.
  • An annuity bought with super money is tax-free from age 60.
  • An indexed annuity protects you from the rising cost of living.
  • Payments from a lifetime annuity will last as long as you do.
  • If you nominate a reversionary beneficiary, a spouse or dependent will receive some income if you die.
  • If you choose a fixed-term guarantee period, your estate gets some money if you die during that time.

The Cons

  • You cannot choose how your money is invested.
  • Income payments will be low if the annuity starts in a period with low interest rates.
  • You can’t change the amount you receive in income once payments start.
  • You lock your money away until the term of the annuity ends.
  • You cannot withdraw your money as a lump sum.

We recommend reading further the Money smart guide to annuities and Financial decisions at retirement, a great resource when completing your initial research into retirement planning.

Why take up an Annuity?

Unlike other types of investments, annuities aren’t impacted by market movements.

Also, they can be linked to yearly changes to inflation, helping you to continue to afford tomorrow what you can afford today. You will continue to receive guaranteed income payments, regardless of how investment markets perform. The best part is, if you buy an annuity with super money after the age of 60, then the income you receive will be tax-free.

Annuities can allow greater flexibility in your portfolio as you’ll always have guaranteed income payments to take care of your essential needs, including groceries, bills and clothing. You might choose to combine your annuity with other retirement investments and sources of income, such as account-based pensions to fund your discretionary spending like entertainment and travel.

5 reasons to consider a lifetime annuity

Complement other investments

Together with the Age Pension (if you’re eligible), a lifetime annuity provides a foundation that you can depend upon to cover your basic living costs – including groceries, bills, and clothing.

Lifetime annuities complement other retirement investments and sources of income, such as account based pensions and the Age Pension. They provide a secure lifetime income which can be used as the foundation of your retirement plan.

Flexibility to withdraw if your circumstances change

Enjoy the flexibility and freedom of knowing you can access cash if you need it. While lifetime annuities are designed to be held for life, there are withdrawal periods where you may access a lump sum if your circumstances change.

Spend confidently in retirement

Just like when you were earning a salary and receiving a regular pay cheque, income from an annuity provides a known regular amount, making it easy to budget your spending in retirement. This means you can maintain your lifestyle with confidence that your savings will last the distance. And if you choose a reversionary, regular payments will continue to your spouse or partner you pass away.

Make your money last a lifetime

Lifetime annuities give you an additional layer of protection in retirement by providing guaranteed income payments. They act as a safety net ensuring that you will receive income for life, regardless of how long you live or how investment markets perform.

Protect against market risks

Unlike other types of investments, the income you receive from a lifetime annuity is not affected by share market or interest rate movements. This means the dollar value of your payments will stay the same, no matter how the market is performing. Payments can also be linked to yearly changes in inflation, allowing you to continue to afford tomorrow what you can today.

A financial adviser can weigh up your retirement goals and needs, and help you decide whether an annuity could be an appropriate investment option for your retirement.

Speak to an Oracle financial adviser today on 02 4088 6444 or book a complimentary consultation today!

Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.
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