Buying an annuity is a great way to use your pension pot and it provides you with a regular income during retirement. In fact, most types of annuities can provide a steady income for the rest of your life. In many cases, this is an irreversible decision, so it’s important to choose the right one. If you don’t know what is annuity, then our annuity tips will teach you how to shop around and find an annuity that will be perfect for you and your family.
Before You Sign Up
In the past, most people that had a defined contribution pension used their pension pot to purchase an annuity. However, these days, you can use your pension pot any way you want to from the age fifty-five and up.
Because of this, it’s important that you speak with a reputable annuity provider before you decide what type annuity is right for you.
We recommend speaking with a financial advisor regarding both annuity options and ISA requirements, in order to set up a retirement plan that will have you covered during your golden years.
Click here to learn more about ISAs.
Our first annuity tip involves shopping around for the right annuity option. This will help you find an annuity that meets your needs and one that will offer you the best income for your pension pot.
First, decide on the type of annuity you need and want. Choosing an annuity type involves getting the best value on the market.
There are many different types of annuities to choose from, but the most popular options include the following:
- Fixed term
- Investment linked
These annuities feature several options regarding how you want the income paid. It’s important to choose your annuity based on your pension pot and current financial situation.
A Higher Income
If you’ve been a smoker or heavy drinker for years, or you’ve recently been diagnosed with a medical condition then you may qualify for an annuity that offers higher monthly payments. This means you don’t have to worry about being ineligible for an annuity based on your lifestyle or health. This is because some annuity providers will pay more since you have a shorter life expectancy compared to a person who’s in perfect health.
Speak with Your Pension Provider
After retirement, typically within one to two months, the pension provider will contact you regarding the value of your pension. They will also discuss what type of income your pension can generate if you purchased a basic annuity. This gives you a great opportunity to ask any questions you may have regarding your pension pot.
Factors that Affect Your Annuity Income
Where you live, when you were born, the quantity of your pension pot, your health, and lifestyle, can all determine your annuity income.
Inflation can also end up eating into your annuity income. If this is a concern of yours you can choose an annuity that pays a smaller income initially but slowly increases the income amount each year.
You can also choose more than one annuity option. You don’t have to use up all of your pension when you purchase an annuity. You can purchase an annuity with a portion of your pension and move the rest into an ISA.
In most cases, the annuity you choose will determine the income you’ll receive for the rest of your life. Which is why it’s so important that you choose the right one.
Because of this, we recommend discussing your options with a qualified financial advisor before you make a final decision. A financial advisor can recommend which products and retirement income options are the best for you, once they have taken into account your personal circumstances and finances.
Other Ways to Purchase an Annuity
You can also purchase an annuity through an annuity broker. A broker can provide information regarding the different annuity options available. They won’t be able to push a specific annuity on you since this must be a decision you make on your own, but they can provide you with the type of valuable information you need in order to make an informed decision.
When you’re shopping around for an annuity and you’ve decided on the type you want to buy, it’s important to act quickly since the quotes are only guaranteed for a limited time and the annuity rates can go up and down. If you’re tempted to delay buying an annuity in the hope that the rates will continue to climb, this type of delay can end up costing you. Each month you put off purchasing an annuity means another month’s income lost.
Once you have signed up for an annuity, you won’t be able to change it or cancel it. Depending on the option you choose, the annuity you buy can provide a steady income stream for your beneficiary for several years after you’ve died. If you have a spouse who will need to rely on this income after you’re gone, then you should seriously consider the annuity options before you make a commitment.
As you can see after reading our annuity tips, there’s plenty to think about before you buy. But with the right annuity broker, you should have no trouble finding an annuity option that will take care of both you and your family during your retirement and beyond.