Question:
I am a single person and need to retire the end of July 2017 after turning 63. I am single and on a pension fund. Which annuity will you recommend?
Answer:
Attie, We cannot advise you on what annuity to buy without understanding your personal financial circumstances. We therefore cannot provide such advice on this form. We can however provide you with more information on your options: You can choose between two annuity products.
The first is an insurance-type product called a guaranteed annuity and the second is an investment-type product called a living annuity. When you purchase a guaranteed annuity you hand over your retirement savings to your chosen insurer. In return, they promise to pay you an income for life (and your spouse's life, if applicable). In exchange for this certainty, you give up the following: 1. You cannot set your own income level, so the income you receive may be below your required or desired income. 2. You cannot change your decision after you have invested in a guaranteed annuity you are tied to a pre-set income and to your provider. 3. Your capital dies with you (unless you pay for a guarantee or include a spousal benefit, in which case the annuity pays out less); your beneficiaries or heirs do not inherit any residual capital.
When you purchase a living annuity you choose how your retirement savings will be invested and your annual income, subject to limits. You can change your income level annually. Furthermore, any remaining capital after your death passes on to your nominated beneficiaries or heirs. In exchange for this flexibility, you assume the following risks: 1. You may draw too much income from your living annuity and erode or deplete your capital; your future income may then not keep pace with inflation, or you may even outlive your savings. 2. Your investment returns may be lower than expected (or even negative) and eventually cause your income to reduce. For a more comprehensive overview, read our blog on the difference between living annuities and guaranteed annuities.
