When you retire, there are different financial factors to consider because you are no longer receiving income from employment. Thanks to medical advancements and healthier lifestyles, you could enjoy a retirement period upwards of 30 years. This is a long time to make your savings last. Therefore, the decisions you make about investing your retirement funds are critical for making sure those funds last as long as you do. Fortunately, there is a way to guarantee a level of secure, regular income throughout your retirement.
What is an annuity?
An annuity pays you a guaranteed income for a defined period of time. An annuity can be purchased from a super fund or a life insurance company using your super or other savings. Annuities are not as flexible as account based pensions. Income is guaranteed to be paid over a specified period, regardless of the investment performance of the assets supporting the annuity, therefore the investment risk for these types of products resides with the provider. In extreme circumstances there may be the risk that the provider does not have the capacity to meet its payment obligations, therefore it is imperative to invest funds with a provider that has a good record of financial stability.
Term annuities have fixed start and end dates that are typically chosen by you. The minimum term is 1 year and maximum term is 50 years. Annuity payments are for the duration of the term and stop at the end of the term.
Lifetime annuities provide regular payments for the rest of your life. If you choose, the payments may continue for the lifetime of a second person after you pass away. Lifetime annuities can help alleviate the worry that you will outlive your retirement savings.
How to purchase an annuity
Annuities purchased with superannuation money must only be in the name of the person who owns the superannuation.
Annuities purchased with ordinary money (i.e. non-superannuation money) allows for the income to be paid to a single recipient or joint recipients, thus allowing people to split their income for tax purposes. Annuities may also receive tax advantages.
Features of annuities
- Security – Your interest and capital payments are guaranteed regardless of share market movements or interest rate fluctuations.
- Flexible terms and payments – With annuities you can choose your investment term. It can be as short as 1 year, as long as 50 years or even for your lifetime. You can also select how often you get paid – monthly, quarterly, half-yearly or annually.
- Lifetime income – In the case of a lifetime annuity you can enjoy regular, dependable payments for the rest of your life.
- Inflation protection – With some annuities, you can elect to index your payments so they keep pace with inflation or at a fixed indexation rate.
- Tax effectiveness – When an annuity is bought with money rolled over within the superannuation system by a person aged 60 or over, the regular payments are tax free.
- Seniors benefits – Annuities can help you access or increase your seniors benefits like the Age Pension and the Commonwealth Seniors Health Card.
How we can help you
At Limestone Financial Planning, we can help you think about:
- your budget in retirement, including how to identify essential costs and desirable costs
- how to structure your investments so that you’ll have a secure income to pay for the essentials
- whether you can improve your social security entitlements by using different investments
If you would like a quote on an Annuity or more information on whether an Annuity is suitable for you, please contact us on 07 3812 7122.
Transition to Retirement
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