Purchasing a retirement income with your pension fund may be one of the most important financial steps you take in later years, and getting it right first time can average the difference between a comfortable retirement and regret. Arming yourself with the knowledge you need is important, so where better to start than a bit of myth-busting?
Myth #1- If I wait for the economy to enhance I’ll be better off
Although possible, this is not necessarily true. While annuity rates are at a historic low there are no guarantees as to when they will begin to rise again. You may be prepared to wait six months, but could you wait for a year, or two years? Playing the waiting game may not be the right option for everyone.
It’s also important to remember that if you do decide to wait you will lose out on any valuable payments you would have otherwise been receiving for that period of time. Depending on how long you choose to wait, this could make your annuity less valuable in the long run.
Myth #2- Annuity rates are down so I’ll get a bad deal
Poor standard annuity rates fill the news on what may seem like a daily basis. However standard annuity rates are not the only thing that affects the amount of money that you could receive as a retirement income in return for your pension fund.
Shopping around should be the first step that you take to enhance your chances of getting a better annuity rate for your money. in spite of of low rates overall the amount that you could receive will usually vary from provider to provider.
It is also crucially important to declare the state of your health, if you qualify taking out an enhanced annuity could get you up to 40% more for your money.
Myth #3- Life annuities are my only option
Annuity products don’t just come in one form, and depending on the product you choose, you do not necessarily have to commit to one rate for the rest of your life. If you are looking for a degree of flexibility you may want to try variable, escalating or fixed term annuities.
There are also of course alternatives to purchasing an annuity altogether. The two main alternatives are capped drawdown and flexible drawdown, collectively referred to as pension drawdown.
instead of using your pension fund to buy an annuity you have the option of leaving your pension invested while you draw an income. Pension drawdown is not appropriate for everyone and there may be certain risks involved and your pension fund will have to meet certain minimum requirements. Nevertheless, it’s important to realise that your options for generating a retirement income may be more varied than you at first might think.
The meaningful to making the right choice is to not wait until you’re about to retire to do your research. Find out what your options are now, do a little of your own research and you could find yourself getting deal that is better appropriate to you, in any case the economic climate.