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Retirement Planning: Benefits of Having an Annuity

benefits of annuity

When you retire, your pension savings are converted into an annuity which pays you an income. To get the highest possible income in retirement you will need to shop around. That means the money you’ve so carefully saved over the years will work for you when you need it most.

Comparison

The choice of annuity can be baffling and it can be tempting to take out the annuity offered by the company that holds your pension pot, but this may not give you the best return on your savings. McCarthy & Stone’s annuity comparison tool lets you compare rates from leading retirement income providers so that you can find the best on offer to suit your needs.

Return on Investment

When it comes to picking an annuity, you’ll need to make a number of choices. Each choice will affect how much income you get from the annuity.

How often would you like to receive annuity income?

You can choose between monthly, quarterly, six-monthly or annual payments and you can also choose whether you’d like to be paid at the beginning or end of each period. If you like, you can receive income monthly in arrears if this is what you have become used to over your working life.

Do you want income to remain fixed or to increase over time?

You can choose for the income you get to be fixed for life. This means you know how much you will get each month. The downside is that if inflation rises your spending power will reduce in relation to the cost of living.

If this is a worry for you, you could opt for an annuity that increases over time. You will receive a small amount to begin with, but your income will increase each year by a level you choose.

Are you taking out the annuity with a partner?

If you’re married, have a partner, or financial dependents, you’re probably worrying about how they will manage financially if you pass away before them. If so, you can choose an annuity that continues to pay all, or some, of your retirement income to a loved one for the rest of their life if they outlive you. This is known as a joint-life annuity.

If you choose a joint-life annuity then the amount you receive each year, will be smaller. But it could be a price worth paying to know that your loved ones will be looked after once you are gone.

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