The Retirement Thread
6 lurkers |
175 watchers
May 2022
4:37pm, 12 May 2022
25,366 posts
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TROSaracen
In a nutshell: Anuity = payment for rest of your life, whether it's 3 months or 35 years. Utter security. Drawdown = taking out 4% is a usual estimate for the 'pot' to cover you for the rest of your life (the diminishing amount in the pot is invested, so it grows and the pot lasts longer than 25 years that the original capital lasts at 4%). With drawdown you can also - adjust the % to front load then maybe reduce once the state pension kicks in - eg take 8% until state pension, then drop to 3% thereafter) - there's a balance to hand down to kids etc when you die - in case of emergencies you can pull a lump out of the pot - you also have some flexibility in terms of the investment - risk wise or ethics wise I'd go drawdown unless annuity was a materially greater return than my (average) 4% take from the pot, for the flexibility. |
May 2022
4:40pm, 12 May 2022
135,272 posts
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GregP
Thanks TRO. I can live with that answer very happily.
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May 2022
5:30pm, 12 May 2022
4,496 posts
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Fields
That’s a very clear and thorough answer; thank you as it aids my understanding
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May 2022
5:37pm, 12 May 2022
21,541 posts
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Ness
That is helpful. Thanks.
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May 2022
5:50pm, 12 May 2022
5,146 posts
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K5 Gus
As long as you accept that your drawdon money is "invested" and could drop, even over the longer term. This may never have happened over any 10 or 20 year period in history, but it IS a risk that you have to accept.
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May 2022
6:03pm, 12 May 2022
2,452 posts
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Flatlander
Excellent details TRO. For my circumstances, choosing an enhanced annuity is a decent decision because the quote appears to be enhanced by perhaps 1/4 to 1/3. What I end up getting is secure and I am hoping to beat the actuarial odds (don't we all?  ) Not all of my SIPP is going into the annuity, the remainder will probably go into drawdown. That way, I am getting advantages of both options. P.S. What I posted earlier was about an option which works for me, I wasn't suggesting that anyone else makes the same choice. |
May 2022
6:14pm, 12 May 2022
4,493 posts
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WayOfTheDodo
Flatlander, a blended approach sounds eminently sensible, especially with an enhanced annuity in the mix. I would keep an eye on annuity rates over the next few months. If interest rates were to rise the return on an annuity could improve quite quickly as the pricing is very sensitive to the risk free interest rate. (It is difficult making decisions that lock you in for life during periods of uncertainty/ volatility like the present.)
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May 2022
6:30pm, 12 May 2022
27,228 posts
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Johnny Blaze
I have a small defined benefit pension, but as it carries some inflation-proofing I'm going to take an annuity from it, plus an annuity from a zombie pension I've had for donkeys' years. The bulk of my pension will be drawdown. I figure that a blended approach will mitigate the risks a bit. I'm definitely taking the 25% tax free on all of them - I've saved into them for decades and I want to see some return on my money!
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May 2022
7:01pm, 12 May 2022
2,453 posts
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Flatlander
Thanks WayOfTheDodo I am actually near the end of the annuity purchase process, just waiting for the annuity provider to request the funds from my SIPP. I had been looking at annuity rates for a couple of years and at the time I applied the rates appeared to be as high as they were likely to go currently. Of course, as you suggest, that could change. |
May 2022
8:13pm, 12 May 2022
12,517 posts
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jda
Equities generally pay a yield of close to 3%, and the market appreciates by <mumble> percent too (above inflation), so 4% for drawdown is an incredibly conservative estimate. I think it would be a rare and poorly-invested portfolio that shrank at all in real terms if you took out 4% per annum.
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