Have your cake and eat it. Buying an annuity to go with drawdown income.
Go on, which do you think it is?
Does a “blended solution” suggest to you a powder-based beverage, a hot drink marketing ruse or, in case you’ve not spotted it, a fusing together of financial instruments?
Given the subject matter of these posts, regular readers will have twigged it’s the latter and a metaphor to evoke more clearly an approach designed to generate income for your retirement.
On the basis of the above summary, it actually works quite well although I can’t quite dispel the image of the dawning glee lighting up the face of whichever spreadsheet wizard dreamed it up.
Fair play, though, for trying to make something which normally switches people off more relatable. After all, ‘annuity and drawdown combined’ is hardly a phrase to designed to want make you want to read more.
But that might change. It’s an idea that’s come of age in a year when those buying an annuity sees their value at a 14-year high. Not only do they give you more money as a result, but their part in the blend of the title becomes more recognisable. A more distinctive swirl in the coffee, if you will.
Were you to construct a financial framework to provide income for your retirement, what most desire is certainty. In this case, knowing how long much their savings will last.
In the good old days of defined benefit or final salary pensions, you were guaranteed a specified income but those days are no longer there for a growing number of us.
Not only is the onus squarely on the individual saver to make sure there’s enough for life after work, but also to navigate the sometimes bewildering or confusing choices on offer. Enter annuity and drawdown combined.
We developed Pension Potential to help make it clear. Not only does it compare every annuity on the market – annuities explained - but it also demonstrates how the guaranteed income from such an annuity can work in tandem with drawdown from money which stays invested.
Yikes. Drawdown. Another dead-eyed financial phrase. Or is it a Sunday afternoon cowboy film title? A new duvet filling? (I’m struggling now…).
It’s basically taking portions of money - typically from an invested fund - the idea being that the overall lump sum is able to grow enough to enable you to keep withdrawing from it.
Buying an annuity offers a measure of certainty. Broadly, it will pay the same amount for the rest of your life and could will, in theory, balance out the ups and downs which may affect what you draw down from the proportion of your pension which remains invested.
The annuity and drawdown combined approach is not new but it does deserve consideration in an era of considerable uncertainty. The good news is annuity income is rising and locking it in may be a sensible move if you are approaching a time in your life when it makes sense.
A financial planner will help you to smell the, well, coffee on what best suits your circumstance.
Get in touch with our financial planners for help with your tailored retirement plan, or visit Pension Potential to find out more about an annuity and drawdown.