When to take your annuity
This recent article from www.telegraph.co.uk gives a good example of whether to delay taking your annuity in the hope of getting better rates. Whatever your situation, it is always advisable to seek professional advice before making such an important decision. The full article can be found here.
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"If you are approaching retirement, deciding when to convert your pension fund to an income can feel like a step into the unknown, especially with the myriad of options you appear to be faced with.
Should you opt for the security of buying an annuity straight away? Or wait a few years and hope the value of your pension fund will rise in the meantime?
This month, global asset management company Schroders reported that a third of retired Britons have used up to £7,000 in savings and investments to supplement their annual income in the past year – but how long will your savings last? Calculating the cost of delay could help you time it right.
If you are considering delaying your annuity purchase, you should be aware it could take years to recoup the income lost over the intervening period if your fund value remains flat.
For example, a 65-year-old man today can buy an annual income of £5,096 from a pension fund of £75,000, but a 67-year-old man in the same situation could obtain a better annual income of £5,380.
If the younger man delays buying an annuity for two years in the attempt to gain the higher income, with all other factors remaining unchanged, he will have given up a total of £10,192 income. He could have received (£5,096 for each of the two years’ delay) in order to boost his annual income by £284 (the difference between a 65-year-old and 67-year-old).
At that rate, it will take him 38 years to recoup the income he gave up by deferring for just two years (Figures from Assureweb August 11, 2010)."
