A Lifetime Annuity is a way to turn your pension savings into an income during retirement. While some annuities last for a fixed period of time such as five or ten years, a lifetime annuity can go on until the day you die. Lifetime annuities can therefore be a way to ensure that your savings provide a guaranteed income for the rest of your life.
There are different ways in which a pension fund can be used for financial security during retirement and annuities are one of them. You can purchase an annuity with a lump sum – which can either be all or part of your pension savings. How much income you could generate depends on the size of your pension pot and how much of it you wish to invest in an annuity. Up to 25% of your pension fund can be released as a tax free lump sum and a large proportion of people use this to invest in an annuity.
How much income you can generate also depends on other factors such as annuity rates, your lifestyle and health criteria etc. Just like enhanced mortgages – there are enhanced or impaired lifetime annuities for people with certain health and lifestyle indicators. A shorter than average life span allows annuity providers to pay out more than they would normally as the expected term of the annuity is shorter than average.
As mentioned earlier, a lifetime annuity is guaranteed to continue generating an income until the end of your life, and as such, can never be completely used up. It guarantees an income for as long as you live – which can be a significant factor at a time when people are living for longer than ever before. There are different types of lifetime annuities – such as level annuities and investment linked annuities.
You can also add additional features to annuities such as protection from inflation, joint annuities for a partner to continue receiving income after you are gone etc. Adding these bells and whistles to a lifetime annuity will affect the income you receive. For instance, inflation linked annuities increase over time – so the income received initially is normally much lower than you would on a level annuity.
Investing in a lifetime annuity is one of the most popular ways to provide financial security during old age. There are many different types of annuities and several annuity providers on the open market – the best way to find an annuity that will suit your individual circumstances is to shop around.