Drawdown v Annuity - Nice first world problem!!

[Myfyr]

If you buy an annuity, your money has gone but you do have that guaranteed income.

Invest it properly and you can have a higher income and retain your capital, which may well grow.

The choice is yours.

TJH

“Investing it properly” is the key. I use ETF collectives like VWRL, IWRD, HMWO and GBDV which is hopefully the right thing to do (and minimises Hargreaves platform charge which is capped at £200 pa). No risky gambles, but pretty much 100% equity. Only down 9% this year which isn’t too bad.

Full ETF list …

Company Name Ticker
Vanguard ESG Global All Cap ETF USD Inc GBP V3AM
SPDR S&P Global Div Aristocrats ETF GBP GBDV
L&G Quality Eq Div ESG Exclsns UK ETF LDUK
SPDR S&P UK Dividend Aristocrats ETF UKDV
Vanguard FTSE AllWld HiDivYld ETF $Dis GBP VHYL
iShares Core MSCI World ETF GBP H Dist (IWDG) IWDG
SPDR S&P Euro Dividend Aristocrats ETF GBP EUDV
iShares MSCI World ETF USD Dist GBP IWRD
Lyxor MSCI World ETF Dist A/I GBP WLDL
HSBC MSCI World ETF GBP HMWO
Vanguard FTSE Dev World ETF $Dis GBP VEVE
Vanguard FTSE All-World UCITS ETF GBP VWRL

[mc2fool]

Once you start getting your state pensions, will those plus your DB pensions (plus any your partner has) provide "enough" income for you?

If so, what's the point of the annuity? If not, how much of a shortfall will there be? Let's say, expressed as the %pa draw you'd have to make from your remaining SIPP, at SPA?

Ok, sorry ….

(1) DB plus SP’s alone, no. But if I annuitised just half the pot for half the annuity the total would be adequate.

(2) Annuitising the whole pot would remove sequence risk and longevity risk I suppose. And not having to stress out at the markets depleting the DC pot (I have an ISA to stay in the markets). And the total guaranteed income would give a comfortable, but not luxurious, retirement.

Despite having a nice crystallised DC pot, it is difficult to kick the OMY syndrome. Having a guaranteed annuity income solves that, possibly (or probably), at the expense of lower expected lifetime income overall.

Any excess income can just be fed back into an ISA.

Ok, but (1) then if you kept the whole pot you'd only need to draw 1.7%pa from it to replace the annuity. If it's totally flat, and you draw a flat 1.7%pa of the original amount, that's 59 years worth of "annuity" you have right there. Of course, you'll want to draw more to keep up with inflation, and that'll mean your pot will also have to grow but a draw of just 1.7%pa gives a fair amount of buffer room.

Re (2) etc, yes, I do understand the sleep-well-at-night factor. That's of course subjective and only you can ascribe a value to it. The rest of us here can just do numerical analysis, which I do get may not be enough on it's own....

[Myfyr]

Once you start getting your state pensions, will those plus your DB pensions (plus any your partner has) provide "enough" income for you?

If so, what's the point of the annuity? If not, how much of a shortfall will there be? Let's say, expressed as the %pa draw you'd have to make from your remaining SIPP, at SPA?

Ok, sorry ….

(1) DB plus SP’s alone, no. But if I annuitised just half the pot for half the annuity the total would be adequate.

(2) Annuitising the whole pot would remove sequence risk and longevity risk I suppose. And not having to stress out at the markets depleting the DC pot (I have an ISA to stay in the markets). And the total guaranteed income would give a comfortable, but not luxurious, retirement.

Despite having a nice crystallised DC pot, it is difficult to kick the OMY syndrome. Having a guaranteed annuity income solves that, possibly (or probably), at the expense of lower expected lifetime income overall.

Any excess income can just be fed back into an ISA.

Ok, but (1) then if you kept the whole pot you'd only need to draw 1.7%pa from it to replace the annuity. If it's totally flat, and you draw a flat 1.7%pa of the original amount, that's 59 years worth of "annuity" you have right there. Of course, you'll want to draw more to keep up with inflation, and that'll mean your pot will also have to grow but a draw of just 1.7%pa gives a fair amount of buffer room.

Re (2) etc, yes, I do understand the sleep-well-at-night factor. That's of course subjective and only you can ascribe a value to it. The rest of us here can just do numerical analysis, which I do get may not be enough on it's own....

With (1) I would have to draw 3.5% up to SPA then drop down after that when SP kicks in. Maybe draw down a bit more to avoid an LTA charge at age 75.

However there will come a time when you don’t really want to manage an investment portfolio!

[mc2fool]

However there will come a time when you don’t really want to manage an investment portfolio!

Indeed, another one of those subjective value factors. There are, however, a growing number of cheap(ish) managed SIPP type pensions around...

[Myfyr]

However there will come a time when you don’t really want to manage an investment portfolio!

Indeed, another one of those subjective value factors. There are, however, a growing number of cheap(ish) managed SIPP type pensions around...

I suppose I could stick it all in VHYL yielding 4% (and other dividend ETFs like GBDV and UKDV, selling the all “worldy” lower yield ones) and draw down the dividends? That should beat the annuity I would think and with no need to manage the portfolio as such?

[Dod101]

If you do go for an annuity I would not have thought that HL was necessarily the best platform to buy from. This is the one time in my life when I would probably go to a specialist IFA because you only get one shot at buying an annuity and you also need the various options clearly explained to you, as well as the best rate.

As TJH says, the choice is yours but of course you may simply be thinking aloud and this sort of thread is often helpful for that.

Dod

[Myfyr]

If you do go for an annuity I would not have thought that HL was necessarily the best platform to buy from. This is the one time in my life when I would probably go to a specialist IFA because you only get one shot at buying an annuity and you also need the various options clearly explained to you, as well as the best rate.

As TJH says, the choice is yours but of course you may simply be thinking aloud and this sort of thread is often helpful for that.

Dod

There were 5 providers quoted on JL 50% spouse, RPI escalation.

Four of them were very similar - Aviva, Scottish Widows, Legal and General, Canada Life.

The fifth was significantly higher - Just Annuities. However the rate is enhanced based on the details I supplied.

By going to an IFA I could miss out if annuity rates drop back.

HL’s commission is 0.6% of the purchase price. No cap so it is quite a lot in money terms!

As you say, I am thinking out loud.

But Annuity + DB’s = comfortable retirement money!

I have been looking at annuity rates for a few months but it is only very recently I have looked at the figures and thought that it was worthy of consideration.

[Alaric]

There were 5 providers quoted on JL 50% spouse, RPI escalation.

Four of them were very similar - Aviva, Scottish Widows, Legal and General, Canada Life.

The fifth was significantly higher - Just Annuities. However the rate is enhanced based on the details I supplied.

The first four are well known and long established insurance companies. The fifth is lesser known. You might be able to get enhanced terms out of the first four with gthe right approach, but that probably would need a specialist adviser,

[Wuffle]

Peoples brains work in funny ways.
One of the more predictable things people do is to have a total blind spot for their own death.
In this context, I would be considering a reciprocal.
If I am getting 3.4%, I would wonder if the odds of my needing aa plan for very extended life expectancy were over 30 (the reciprocal).
Never met my uncle, brain haemorrhage in his 20's.
Sister in law, obscure undiagnosed thing, gone in her 30's.
At work on a site with 100 staff, near fatal road accident in the summer, a colleague went off sick beginning of December who didn't make Christmas.
Dad (somewhat predictably as a lifelong smoker) gone at 75. Mom, also predictably as it happens, Parkinsons and dementia.
The odds don't get better with advancing years.

At least acknowledge the reciprocal risk.
An annuity could just as easily at 30 to one odds be the sh*test bit of risk management you ever undertake.

W.

[Dod101]

If you do go for an annuity I would not have thought that HL was necessarily the best platform to buy from. This is the one time in my life when I would probably go to a specialist IFA because you only get one shot at buying an annuity and you also need the various options clearly explained to you, as well as the best rate.

As TJH says, the choice is yours but of course you may simply be thinking aloud and this sort of thread is often helpful for that.

Dod

There were 5 providers quoted on JL 50% spouse, RPI escalation.

Four of them were very similar - Aviva, Scottish Widows, Legal and General, Canada Life.

The fifth was significantly higher - Just Annuities. However the rate is enhanced based on the details I supplied.

By going to an IFA I could miss out if annuity rates drop back.

HL’s commission is 0.6% of the purchase price. No cap so it is quite a lot in money terms!

As you say, I am thinking out loud.

But Annuity + DB’s = comfortable retirement money!

I have been looking at annuity rates for a few months but it is only very recently I have looked at the figures and thought that it was worthy of consideration.

Clearly as interest rates rise, annuity rates will tend to improve. Apart from getting the best rate available, you also need to be sure that the intended provider is going to be around for the next 30 years or so. By going to a specialist IFA you you could also benefit if rates rise, so with respect your comment is self evident but does not get you very far. Just Annuities appears to be an IFA so it is not surprising that they have produced better terms. The four companies you mention are standard mainstream companies so their terms will tend to be similar.

Anyway it is your money..............I do not like taking advice from advisers but when it comes to an annuity, as I said i probably would. They often I think also have access to rates that you would not be able to access yourself.

Dod

[Alaric]

Just Annuities appears to be an IFA so it is not surprising that they have produced better terms. The four companies you mention are standard mainstream companies so their terms will tend to be similar.

That's what I thought at first, but looking deeper into their webpages, there does seem to be an Insurance Company in the corporate mix.

[scotview]

Last week I ran an annuity quote with Hargreaves Lansdown with 50% spouse

Maybe one point to consider. In a worst case, would your widow manage on the 50% reduced annuity ?

[Dod101]

Just Annuities appears to be an IFA so it is not surprising that they have produced better terms. The four companies you mention are standard mainstream companies so their terms will tend to be similar.

That's what I thought at first, but looking deeper into their webpages, there does seem to be an Insurance Company in the corporate mix.

Looking at the accounts, Just Annuities is dormant. Anyway Just appears to be primarily an insurance operation.

Dod

[tjh290633]

Clearly as interest rates rise, annuity rates will tend to improve. Apart from getting the best rate available, you also need to be sure that the intended provider is going to be around for the next 30 years or so. By going to a specialist IFA you you could also benefit if rates rise, so with respect your comment is self evident but does not get you very far. Just Annuities appears to be an IFA so it is not surprising that they have produced better terms. The four companies you mention are standard mainstream companies so their terms will tend to be similar.

Anyway it is your money..............I do not like taking advice from advisers but when it comes to an annuity, as I said i probably would. They often I think also have access to rates that you would not be able to access yourself.

Dod

My annuity was originally bought in 1998 through an IFA provided by my employer. He found the best rate which was duly taken. I forget the provider now, but it could have been Sun Life of Canada. They offloaded the annuity to Friends Life, who got taken over by Aviva, the current providers. The terms have not changed along the way.

The IFA route may well be the best one to follow. It depends who is paying him.

TJH

[Myfyr]

Last week I ran an annuity quote with Hargreaves Lansdown with 50% spouse

Maybe one point to consider. In a worst case, would your widow manage on the 50% reduced annuity ?

Yes, no issues there!

[Myfyr]

As of now, I haven’t gone down the annuity route.

Better to procrastinate than buy an annuity and regret it.

[Dod101]

As of now, I haven’t gone down the annuity route.

Better to procrastinate than buy an annuity and regret it.

That is true but if you do go down the annuity route you want to do it whilst interest rates remain relatively high.

Dod

[Myfyr]

Just (no pun intended) an update.

Have opted for an annuity of 3.78% rpi / 50% spouse / 10 year guarantee with 67% of my drawdown pot. Just waiting for the underwriting to complete.

With Just Annuities as they were best this time too.

The remaining pot is in 5 world tracker ETFs that were listed in the mishmash mentioned earlier.

Means I can retire comfortably when the annuity kicks in but I will hang around until the end of the tax year to replenish my DC pot a little bit. Hitting the big 60 next summer.

Bit of a palaver getting the funds to the provider - it bounced back into my DC pot three times (repayment date backdated to original paid date) and Hargreaves Lansdown couldn’t explain why. So just need to wait now and hopefully the annuity will start paying out.

Is there a cooling off period so I am sure that i am doing the right thing?

[Myfyr]

The annuity has now started with a partial payment mid December and the next instalment is payable on 1 January (but being paid 29 December due to the bank holiday weekend).

The annuity rate now is 6% lower than I got last month so I seemed to have timed it nicely. I had no bond exposure so the higher annuity was not at the expense of my fund value.

[AshleyW]

With RPI annuity rates around the same level (or perhaps better) than drawdown safe withdrawal rates they are worthy of serious consideration. The issue of inheritance does seem to worry some but most retirees will be leaving a valuable property for their heirs.

A guaranteed income also overcomes one of the biggest financial problems in retirement which is under-spending due to fear of exhausting savings - I also vaguely remember some research that shows retirees with guaranteed income are happier than those who rely on investment income (Wade Pfau I think).