The Powerful Retirement Strategy Everyone Hated (Until Now)
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- Опубліковано 20 тра 2024
- A Guaranteed Retirement Income For Life - This is what most people are looking for in retirement, and there is a tool that can provide this for you, but over the last 15 years, low-interest rates have caused it to fall out of favour.
But with interest rates on the rise, I see Annuities forming the cornerstone of many people's retirement plans. So what are Annuities, and how can you use them?
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00:00 The Problem
0:52 The Example
02:48 The Solution
4:09 How To Create a Guaranteed Income For Life
6:06 Why Annuities are Better
08:18 How To Use Them Effectively
Thank you to everyone who has provideded me with feedback on the Cashflow Planner! I will be releasing a new version with updated features for the new tax year.
No idea what I'm talking about? Check it out here: james-shack.co.uk/cashflow-planner
Thanks for providing such a useful tool, looking forward to checking out the new version when it's ready.
Cannot wait! :)
It would be great if you could possibly add Lifetime ISAs to the planner too. 👍
principle or principal?
This has been great. I’ve made my own modifications. I’ve changed the draw down so it focuses on GIA before tax wrappers (pension and ISA) of the two partners - gives more accurate longer term tax advantage. Also changed the draw down of GIA to pay tax on the draw down vs just tax the gain each year, reflecting the GIA will have some gains already you want to compound over time. Also added a yearly general spending adjustment to factor in things like house renovations etc independent of funding specific spends. I’ve recently been playing with Voyant Go and a license I have for that. While it is a lot more detailed, I have found this spreadsheet just as much use as such software.
My dad took 25% tax free cash and an annuity at 58, the annuity is small, and basically pays for a holiday or two each year. If he lives beyond 77 then it will have paid off. The 25% cash meant he could semi retire and go part time from 58 to 66 when he got his state pension. Some of the best years of his life working less and living more
Thank you for sharing James. Everyone's circumstances are different and there are plenty of ways annuities have given people the certainty they need in their lives.
That’s what my exact plan is as well in 4 yrs time.
My grandfather was forced to retire at 61. He was civil service so zero choice - they just wanted him gone. He's 88 now and the energy crisis has gone completely unnoticed at his house.
Why?well and his wife just stopped bothering to read the bills. The direct debits pay everything unnoticed. -Anything else - they have us bother with. 😂
For your next video suggestion - please(!!) make a video on pension advice for all those millions in the UK who are renting, and who will not have their own house at retiral.
I've been part of FIRE forums on Reddit for a while now and thought I had a decent idea of how to plans my finances, but watching some of these videos has made me realise that theres a whole level of detail I'm missing right now!
I've just come across your site and am already impressed with your content. Cheers.
Thanks James. It would be interesting to see a video comparing the tax pros and cons comparing an annuity, UFPLUS and standard DC pension with 25% tax free taken (plus an additional option if you think that a 4th option needs to be considered. Plus mix and match optimised opportunities.
Thank James. This video is very pertinent to my situation. For me, an annuity to cover the core expenses is a good approach as it gives the freedom to enjoy discretionary spend
Watching from Zimbabwe. Thank you. Great video!
very comprehensive information. I haven't heard this all in one place before.
Thank you James. Annuity payout rates are very high. At 62 now, I just annuitized about a third of my retirement plan with a fixed annuity at 7.4%. This suits my personality. Another third will come from US social security and the final third from investments. I like having a portion in secure lifetime income. Another point is that I don’t want to make financial decisions in my later years or have money available that might fall into the wrong hands. Thanks for a great video.
I was checking the fixed term annuities last month and I had the same thoughts as you. I like the fixed term annuity because you have better control. Although I was checking the option of getting my money (or 80%) back at the end. This was also around 4% but it gives you the possibility after 10-15 years to get the money back and buy a lifetime annuity (older=better return) or just get another fixed term. By that time you will have the state pension. You may check that option too
I've been thinking about an Annuity these past 12 months. Thanks for the tools.👍
Excellent, thank you.
A nice balanced presentation of the options. This is very useful information. I spent many years as a trustee for a large company pension scheme and of course many people do not pay much attention to their retirement until it starts to loom. You are providing valuable insights and doing so without any bias. Well done.
Thank you for the comment, it means a lot coming from someone who's been in charge of so many people's retirement plans!
A very useful video thank you 🙏
I want to leverage annuities in my retirement exactly because it will buy me peace of mind that my wife will have nothing to worry about after my expiry. That comforts me far more than historical statistics ever could.
Hi James. Really love your content. I'm the BDM for LV in London and this is exactly where our Products sit. We should talk :)
Great explanation!
Thanks for the information James. Seems to me there is a number of choices that one can make to produce a long term solution to financial security. Your planning tool is a very welcome addition to the multitude of calculators out there. I feel it is a lot clearer than most and you can adjust your figures where appropriate. I have been thinking of an Annuity for the wife to supplement the state pension, so am wondering what is the minimum amount needed to justify purchasing one. At a guess, 50k but obviously depends on lifestyle etc. Thanks again
Nice work Mr Shack
You're welcome!
Now I have more knowledge about personal finance. I just subscribed to your channel. Big ups to everyone working effortlessly trying to earn a living while building wealth in this recession. I’m 47 and my husband is 51, we are both retired, no debts. Currently living smart and frugal with our money and still earning passively even in recession. Saving and investing lifestyle in the financial market made it possible for us this early even till now we earn monthly through passive income.
Congratulations on your early retirement, Interesting indeed! Currently, I am in dire need of investment advice or tips. Last year, I hesitated and failed to take any action until the year concluded. However, this year, I am determined to try something new, as I am very receptive to various investment ideas. I want to be retired in my forties or fifties.
Thanks for the video James. I’ve been thinking buying an annuity to cover core spending seems a good idea for a while so it’s really nice to have that confirmed. However, I hadn’t considered the pros and cons of planning to buy one later in life so that was a really useful extra thing to consider. BTW, really looking forward to the next version of your cashflow planner!
Great Andy, glad to be of service!
Just want to say: Your videos are truly fabulous. The perspectives you manage to open my eyes to, and explain so clearly, are expanding my understanding of finance planning as a tool for living.
Thank you very much for your comment. I very much appreciated and feedback. I will keep it up!
Did this a year or so ago. Converted part of my LGPS AVC sum into an annuity and took the rest as a tax free lump sum. This boosted my monthly income to a level which will comfortably pay all my bills with some discretionary spending above that level while allowing me to save/invest the lump sum. It’s provided great peace of mind whatever happens. My Mum is going strong at 96 and Dad died at 91 so avoiding outliving my funds is essential.
Approaching 61 years of age and recently retired plus given our circumstances, I think we'll stick to relying on draw down plus wait for state pension to kick in. Then perhaps reconsider as I approach 70 (God willing). Part of that reasoning is also down to the fact that I currently like the option of being able to potentially pass on whatever is left in our pensions to the kids when we shuffle off this mortal coil.
A useful video, thanks. I have a Prudential With Profits Retirement Annuity Contract (section 226) - nearing retirement, I was very pleased when 15 year gilt yields and annuities rose considerably late last year, expecting my annuity to be considerably higher when eventually taken .....however the Pru devalued my pension pot by nearly £20,000 overnight! They say it was 'in the interest of fairness to other with profits customers'? It seems higher annuity rates will not benefit me at all. Had I been wanting to put the pot into drawdown - that missing near £20,000 would have meant quite a difference too.
This vid beautifully explains how those of us in our late 50s can pack up work early & take advantage of current annuity rares to bridge the gap til we get our state pensions. Very helpful. THANKS.
You're welcome!
I am pleased to say that this is exactly the strategy I have in in mine when I retire at 60 in 3 years time. A fixed term annuity to get up to state pension age, seemed like a no brainer :-)
Hi James, great content.
I’m 62 and 100% investigating the idea of a (30-year guaranteed) lifetime income annuity, particularly as rates are so strong currently. If I die within the 30 years then my wife will inherit 100% of the monthly payments for 30 years from the inception of my policy.
Following the stock market and world events/politics has been draining for me over the last few years… so I’m looking for a simple solution going forward. Also one advantage of an annuity is that there is only one initial IFA set up charge… and then no more yearly fees… and that’s also appealing tbh.
I hope to finalise my plans in early 2024, fingers crossed. 👍🇬🇧
All the best for Tim!
Thank you
We bought an Annuity last year as a combination Annuity and Drawdown. Aged 56, Annuity will last until state pension then will reassess. Very happy that bills are paid by Annuity leaving the rest of investments for discretionary and flexible income. Also working out well with income tax as annuity pays out less than tax allowance!
Love your show! Please James, may we have a look at children’s investments? Child ISA or child pension? As children have such long saving times might small/ mid cap index funds make more sense than the usual “stick it in vanguard GF” pension strategy? Thanks!
Another great video James. You clearly set out the pros / cons of annuities and why they might be worth considering again - given the changes in interest rates. I agree that a hybrid approach where an annuity provides a base level of income whilst still allowing flexibility is a good approach - as is a fixed term annuity if you know there is another income stream that may be available in the future.
Yes exactly. The old days of buying an annuity with 100% of the pot are gone but there’s some interesting use cases now rates are up.
@@JamesShack Agreed. I think interest rates will rise a little further before they peak, so annuities may increase further. Also, if life expectancy in the UK starts to fall, then this would have a favourable impact on annuities? Finally, one approach you didn't mention (not even sure if it's possible in the UK) is to buy what I'll call a 'future' annuity. Say you're 60 but don't want a fixed income until you're 80, when you decide you'd appreciate the stability of a regular income. The advantage would be a discounted cost because there's a chance they won't need to pay out (if you don't make it). I read about this in a US investment book but not looked to see if this is available over here.
Thanks
James, as ever excellent and concise presentation. I called an annuity broker after watching and will let you know how I get on. I have struggled with the option paralysis you cite and know as a result have made some duff investing decisions so to have a solid base especially so now interest rates have risen further from when you made the video would be hugely reassuring. Thanks.
Tim should also consider that if he lives into his 80s, his chance of having mobility problems increases, as does his chance of getting illnesses like dementia. My point is that it means either due to physical frailty or cognitive impairment, Tim will not need the same amount of discretionary spending because the physical frailty and cognitive impairments will force a natural reduction in his spending levels so much so that he's unlikely to run out of money. I look at my gran who's 89 as an example here. She is fit as a fiddle but no longer drives a car because her reaction times are too slow. She has stopped trying to play the ukulele and only spends around £50 a week on the wee clubs so goes to. The point is while things like a car did cost her thousands of pounds to run in her early retirement, not having a car in late retirement saves her money and reduces the pressure on her savings to fund her lifestyle. This kind of thing is going to happen to us all. Plus it's worth mentioning that your chance of getting to 90 is only around 4.7% which means Tim and most of us here on UA-cam are probably going to die in our 70s or 80s. As I live in Glasgow I will probably be dead by 70.
Basically, Tim needs to consider all the activities he will spend money on in early retirement that he just won't spend on in later retirement as he comes to the end of his life. It's unrealistic to assume you need the same level of spending throughout your entire retirement period.
Hi James a quick check seems to indicate 3.5k from 60 with rpi...for 100000 doesnt quite look like a bargain, the security and simplicity looks attractive, but i would also expect a tailing off of expenditure after 75, which might bump it to 6K. Inflation is the concern for me. Would like to see a video on tax efficient ways to withdraw pension, also what to expect with UK gilts as im feeling a lot of pain from these
I checked annuity rates the other day and was pleasantly surprised at the rates on offer. Annuities are now back in the game and I am considering using about 1/3 of our joint pension pot to buy an annuity. I feel this will hedge our income streams ( property rental / annuity / drawdown) so if one is down the other may be up, or in the case of an annuity, stable. Once again your channel has provided valuable information and food for thought.
Hi Mark, they a useful tool to have I’m the toolkit. All the best!
Hi James, great video. Think a mix of annuity later into retirement and flexible drawdown will work for me. One video that would be of interest is strategies when there is a 10 year age difference between partners, with staggered state pensions and even more unpredictability in joint life expectancy projection to contend with. As men are often older than their partners I can now see why there was a benefit in the previously unfair pension age differential.
what was the benefit? so your saying if you purpoefully married 10 yrs younger there was a benefit?
@@stopwars8642 no it used to be in UK that women retired 5 years before men. As men tend to be older than their partners it meant both reached pension age at a similar time. That was a benefit.
Hi James, thanks for this. You do some great videos on planning for retirement, but would you consider doing a video on the slightly different situation of civil service pensions?
Another great video. We're a few years away but our thinking at the moment is to use my wife's pension (75,%)to purchase annuity. This coupled with my DB pension will give us that base expenditure no matter who dies first. If I didn't have the older DB pension I think I would use a proportion of fund to buy annuity
Hi Neil, thanks for sharing this comment. See where rates are at the time. If rates are still high hopefully there are even more products in the market that are more competitive.
it all depends if you wish to leave money to your kids or anyone else if you dont annuity could be the way
Can you make videos also for the average people?
In average in UK the salary is 30k, with a mix pension contribution of 7.5% (both employer/employee) a pension pot for 35 years of work will be just around £200k if you assume a 5% growth....
With a fixed term annuity that returns monies at the end, is that a taxable lump sum or does it stay within the pension, to be drawn out when required?
Really interesting video, as usual, James. I really like the idea of using a fixed term annuity to bridge the gap between retirement and, say, the state pension kicking in. What's especially powerful is the idea that it allows you to have a less volatile source of income for the medium term, while giving comfort in taking a higher risk approach to longer term investment of the remaining pension pot. I'll definitely add this to my own thinking! One question - do you think this may make lifestyling in a typical employer's DC scheme a bit more sensible/viable than it has been in the last 10-15 years?
Newer pensin plans often have specific Lifestyle strategies you can follow if you're looking to buy an annuity vs if you're looking to go into flexi-access drawdown. So you may need to adjust the fund % to match what you intend to put into an annuity.
Also worth considering that you will likely want to spend more on travel in your 50s 60s than perhaps your 70s and 80s. My parents in their 70s now, have done a lot of World travel already in their life and so just don’t have the same appetite. You have less energy and travel, certainly long haul can take more out of you, it’s just not fun anymore. Anyway the point is your annual spend in retirement is likely to change due to reduced spending on travel as you age / in your 80s and beyond. At some point as well you might downsize to a smaller property and release funds tied up in bricks and mortar.
Very interesting. At the age of 52 (Hubby is 56) and wanting to retire from our farm business in 5 years or less, we are finally getting serious about planning for retirement. Seeing a Financial Advisor this week. Not sure I am grown up enough 😂
You don’t need a financial advisor when it comes to investing. The information to teach yourself is all online.
Whatever they say, they’re sharks in suits and that 1-3% cut they’ll take doesn’t sound much, but, over years represents thousands of pounds they siphon off you.
In the USA people have yet another option which is Deferred Annuities. I am strong believer in the saying that "a pension is insurance against old age" 🙂
You mention Defined Benefit pensions. Something to check is whether they go up with inflation once in payment. A large chunk of mine is limited to a maximum of 2.5% a year. I am wondering if it would be best to take the 25% tax free lump sum and to use it to buy an index linked annuity. I still have about four years to make that decision.
I’m planning to use a mix of drawdown and annuity. I’m 52 now but my pot isn’t large. Want to try and pay off my mortgage early but it’s tough. Once I do, I’ll invest the amount each month to grow my pension pot. But yes, defo a mix for me as I am risk averse
Thanks again James, another great video. A query I had, which I don't think (might be mistaken) you've expressly covered in a video before, is what to do if you are a long way away from retirement but are projected to exceed the lifetime allowance. In my case, I'm in my early 30s with a current pension pot of ~200k. If I were to completely stop all contributions and assume a 7% average return (pot currently 100% equity) then that brings me to the LA before 60. If I assume that I continue with just employer contributions, then assuming I continue with my current income, I would reach about 1.6m, which, even accounting for increases in the LA in future to account for inflation (here's hoping...) would probably cause me to exceed the LA.
I would be interested to hear about your views on how best to manage this situation, as it seems pretty complex. My understanding is that the taxes if you exceed the LA vary depending on how you take the relevant amount, and if, for example, you were to just take £50k income then you would pay 25% tax on the pot plus 20% income tax for an effective 40% tax rate, which would be better than paying 40 or 45% tax on income outside the pension plus 20% CGT on gains (assuming you're already maxing ISA contributions) and then there are of course the other pension benefits like falling outside of IHT and 25% tax is better than 40% IHT, and I presume that's also better than paying 40/45% on day 1 and then using something like AIM shares to avoid the IHT.
Anyway, I appreciate that this isn't a forum for you to give advice to any specific individual, but there's a lot to consider here and so perhaps others might also be interested in this kind of analysis etc.
Maybe you don't realise but you are one of the most fortunate (hard-working?) 4% that can envisage approaching the £1m LTA. The good news is that the March 15th budget solved your problem by eliminating the LTA altogether and also increases the ceiling on tax-free pension contributions. That's not to say, of course, that the LTA may not be reinstated at some point in the future but it sounds as though you already have a pretty well optimized approach.
one of the main reasons for considering annuitys is that if taken early ie early 60s .It will continue paying out so if you live to 90s thats a long time to get it .Also when paying into pension we did not pay that much in .Its the growth that has made it ie say you have 100k now you have only really put in roughly 25 to 30k so if you have annuity even after 5years they pay you thats your money back every thing else is extra.based on that it makes it a good product and also keeps paying you .I know you cant pass on unless you have fixed term but you can give from the annuity or have other plans like use the lump sum to invest in stock market which pay dividend stocks that way you are in charge of what you do also isas and bonds now paying 4%so adding to them helps
I have this horrible feeling that your videos are going to "cost" me a load of money.
I'd always assumed I could watch a few vids, learn a few tricks and they wing it with my new found wisdom.
Now I' starting to realise that I'm probably going to need an Advisor before I retire.
"Tim" sounds a lot like me. The main difference is I's like a more affluent retirement.
Great vid BTW - as always.
Haha . Well thank god you didn’t just wing it! Could have cost you a lot more!
Like your videos James ! Please be careful when using the sentence ‘ running out of money’ this is a scary statement used by sales people to frighten people in making decisions with their heart and not their heads. None in the UK should run out of money, the government pension is designed to ensure that !
Great video, I feel annuities offer a part solution which can help ensure the base outgoings is covered . With the stocks portion for the discretionary spend. I’ll certainly be looking at them as part of a solution.
You briefly mention "FSCS protection" at 7:25; how do you think about counterparty risk when considering an annuity?
Hi James, what would be reasonable assumptions for the best and worst case scenarios, that could be used in your Cashflow Planner, in order to be able to recreate the outer bands of projected pot value as presented for example by Timeline ? Thanks for the great content and spreadsheets !
Gonna build this into the next version!
@@JamesShack You are a * !
My dad purchased Annuities and I have a friend who purchased an Annuity a couple of years ago when he retired. I'm not sure about the UK, but in the U.S., Annuities are expensive and for most people, it's not a good choice. In the U.S., you are trading security/guaranteed income but you are probably coming out financially worse off than you would with investing in a conservative market portfolio. Consumer Advocate, Clark Howard recently broadcast an episode on Annuities in the U.S. I guess for some people, the security of that guaranteed income is the most important consideration.
If you can tolerate the risk of the stock market it's highly likely you will outperform an annuity over the long run. But as you say, for some, the security of that guaranteed income provides the peace of mind they need.
@@JamesShack With the way inflation is going in a few years a loaf of bread will cost a million dollars. An annuity won't save anyone from that
@@anthonyfaucy2761 it will if it's inflation linked.
@@clarkeysam inflaton linked but max capped somewhere in small print.
Ifas love annuities also, they make money from selling that product, a product that gives you no freedom to spend your retirement as you wish. Always use a drawdown, that way you have complete control.
Good video, thanks
Glad you enjoyed it!
Great video. Very relevant. Only thing I would mention is it should be ‘principal’ not ‘principle’. Sorry for the pedantry!
One must have principles about such things.
Hi James, interesting video about annuities. Question and thoughts that I have is why wouldn't you invest in either blue chip stocks like L&G, Aviva, etc who pay a good dividend, take the income and keep your capital? Yes I know these shares go up and down, but in 10 or 20 years time you will still have the capital left. Whereas in an annuity its gone (either when you pass or at the end of a fixed term annuity). Alternatively an IT such as City of London which currently pays a yield of nearly 5% and is spread over several good high yielding shares looks to give a similar return as an annuity but again you still retain your capital. Would appreciate your thoughts as this is what I'm currently considering. Thanks
Yes, you're much better off drawing natural income from a high-quality investment trust.
I had no considered a fixed term annuity, I may consider this.
It's definitely one to keep an eye on.
Also annuities mean that you miss out on IHT protection from pursuing a bond ladder strategy within your pension. Also with the bond ladder strategy your heirs can continue to benefit from the tax free wrapper... surely that makes it a better strategy?
Really informative video and agree with the hybrid annuity/drawdown strategy. Sadly, I suspect many financial advisers don't like the idea of an annuity as they can't slap an ongoing adviser charge on it!
This is very true! Although if it was in the clients best interest, the adviser would still have to recommend one. Or risk being struck off.
They would take their cut of the annuity payment every year
@@mapryan they cannot do that just a charge at start not each year.
Good video. Of course the underlying issue is Tim is unwilling to invest 60-80% in equities.
I guess he could have a 2-3 year cash buffer which then feeds his essential monthly spend into his current account.
Indeed. A higher stock allocation works give better chances of success… if you can stomach it.
I will be getting a guaranteed rate annuity from Legal and General this summer, aged 70. My husband and I started our private pensions at age 30 (me) and 36 (him). With the mortgage long since paid off and both children assisted with property purchase, there is little need for much more income beyond our full state pensions, yet from 2 annuities there will be ample funds flowing in every year for the rest of our lives. My only concern is for our final decline in health, in maybe another 15 years, and the financing of care homes or daily attendance of carers in our own home. Any suggestions?
Hi James. Love your videos. Why, if life expectancy is lower for men and they (I guess) do more paid working hours over their working life, doesn't their state pension pay out earlier than women? Or how can the Govt justify paying state pension on equal life expectancy?
Just when you think you know everything already along comes James to plant a seed of doubt. Annuity performance has been pathetic for years. It had similar performance to a shoe box where you take out money each week except that unlike a shoe box you don’t always get your money back. The bond performance has, like the annuity become very competitive just now, along with savings rates just as shares have become a bit tricky. Thanks James for making us have a rethink. .....Ok I’ve thought and I still don’t much care for annuities but as part of a mixed strategy and professionally planned they have their place.
There are a multitude of pension products but it seems to me what is required is a comparison site for annuity payouts. Does such a thing exist?
I'm interested in what Tim was going to do with his home? Could he not use the equity from his home?
Hi. Maybe simple question, but what if I bought two flats for rent instead?
Thank you so much for covering this topic. From what I understand annuity is similar to defined benefit pension scheme in the workplace? I presume the main difference is who could contribute to the annuity. I recently came across my DBP pension and have now left the organisation. Would be good to understand what to do with it after leaving the org. Thanks!
DB schemes have hard and fast rules, so options are limited.
If it is like mine, you can access it earlier but with a reduced lifetime amount.
You can transfer it all to a SIPP (seldom worthwhile)
I will be going another route, which is to take a tax-free lump sum, PCLS, and putting it into ISAs.
This reduces the annual pension, but there are reasons why this is good for me.
My DB isn't indexed, so any cost of living increases are discretionary and historically it is falling behind.
My PCLS can grow and be accessed in a tax-free wrapper (ISA), meaning I can leave my DC pension to grow for my beneficiaries, and not pay income tax when accessing it via UFPLS. Only removing the tax-free amount, and leaving the crystallised funds in.
@@slayerrocks2 thank you so much for your POV. This is appreciated
A DB pension works like an annuity in many ways. They give you certainty of income and often link it to inflation.
@James Shack my DB was 'adopted' by a company, after a takeover. They committed to "try" to maintain previous assurances.
Rights earned are treated differently depending on the period and rules in place at that time.
The majority was set to increase with inflation, with the proviso that it was at the company's discretion.
They stuck to that for one year!
In the following 11 years, pensioners in receipt saw their DB pensions lose pace to the tune of 14%.
An action group was set up, and its appeals have been rejected.
So, while my deferred pension will increase by 5% p.a. to achieve the rate of inflation, (if inflation drops to 2% DB still increases by 5% until the 10% inflation has been equalised),
as soon as I'm in receipt, it is at risk of not keeping pace.
That, coupled with paying income tax, is why I'm opting to take the full PCLS, and investing in S&S ISAs.
@Jojo you're welcome.
There are commonalities in DB schemes, but they also have their own intricacies.
e.g. I can retire at 55 but with reductions. After 60 there are no reductions.
However, someone in the NHS will have different rules. I don't think they can receive theirs until state pension age (certainly not without reduction).
Yours will have its own idiosyncrasies. You will either have to read the scheme rules or have someone else do it to fully understand them.
Thank you James. Apart from funds I haven't found a way for individuals to buy government bonds directly. Is there a way? Thanks
Most large brokers sell them. Hargreaves Lansdown as an example.
Hi James, I'm really enjoying your content! I am invested in a Global Index fund (cheap charges) and a FTSE All-shares Tracker fund (cheapest charges). However, I have switched my future contributions into a Money Market fund as temporary parking whilst waiting to see if my favoured funds fall in price and I can buy more units at a reduced price. Might this be a good idea in the current circumstances?
It’s impossible to predict what the market will do over the short term. Best to stick with it and invest for the long term.
I live in America and have an old company pension plan how would this work for me seeing how I am not allowed to move the funds to an retirement investment here in America because the irs won’t allow it
Looking at buying in May this year 10 years income
Can you buy an annuity within an ISA wrapper? Now that’d be cool
Is it me or is it the link to compare guaranteed income products that isn’t working, the link gets me to the page but the get started button doesn’t seem to work?
Hi James. I’ve recently went self employed and have been looking into saving into a sipp for my pension. However I’m still young and with the retirement age going up and up each year I’m worried in 30/40 years if I’ll ever be able to access it and enjoy my retirement as I’ll be too old. I’m looking at possibly saving my pension into an isa and investing it myself, so I have more flexibility on accessing my funds if I wish to retire younger. What’s ur view on this? And have u any advice? Keep up the great work thanks lew.
A balance of both is often the right answer. ISAs are more useful if your younger, due to flexibility but pensions are more tax efficient. But you can use your ISAs when closer to retirement to make larger pension contributions.
Thank you for the video. Please would you clarify - can annuities only be bought with pension money, or can they be bought with cash (or part and part)? As someone who has only a small private pension pot, will I be able to add cash when buying an annuity?
Yes you can. You're then only taxed in the interest you receive rather than also being taxed on the capital returned.
Was curious about this too, it looks like a good idea!
If you took 10 people they have 11 different ways to spend their retirement 😊. Using a financial plan or a financial planner is like trying on an item of clothing. Does it fit? Is the money better spent on something else? Does it suit me? How durable is it? Most people buy clothes without too much analysis but you can’t take an annuity back if it doesn’t fit. Thanks James for showing us the choices beyond the Red and the Blue selection.
I just wouldn't get an annuity. I also wouldn't go 60% into bonds, though. Like he said in the video, stocks are almost guaranteed to outperform both. I'd rather stay heavily invested in stocks with 10% or so in cash equivalents +adjusting spending to ride out down markets. That's just much more likely to result in more money for me in retirement and more money for my kids to inherit.
I’m 52 right now. Looking at retiring at 57 and will have approx £550k in the pension pot by then, plus a property I currently let out which I will sell in my first year of retirement for around £300k (or I might even sell now and add to my pension & ISA)
I will drawdown/ufpls from the pension pot, taking 25% tax free each month. I just can’t see an annuity working for me at all! Maybe, maybe, I’ll take a fixed term annuity for 10 years until the state pension kicks in, but I doubt it…
Can the interest rate received on an annuity change throughout your life or is it fixed on the day you sign it? I’d imagine it doesn’t change otherwise what’s the point
I have my fund parked at Royal London since March 2022 as I took early retirement but didn't feel it was a good time to invest in the stock market at that time. Getting 3% just having it parked and waiting to deploy, looking at annuities now. Seems annuity rates have fallen a bit in the last month , looking both at lifetime and fixed term
I have already planned on putting 1/2 of my portfolio in an annuity, and leaving the other 1/2 in the market (and move it from value funds to more aggressive growth funds). Essentially moving my bonds portfolio to an annuity.
The only question is...when?. Now (rates are good). Or in a few months (interest rates are likely going up, but do interest rates really effect the annuity return that much...)
Yes , that's the whole point of the video.
That's the challenge, do you wait for rates to rise, or what if they fall? You could always do it slowly, increasing your annuity balance over time.
An annuity are good, but only good if you take it late on, i.e. at age 70 or later. Otherwise, the rates are simply too low - this is the inescapable fact.
So want to buy an annuity whilst these interest rates are high but I am only 53. Can I use this bond ladder instead? I am concerned interest rates may drop in the next two years. What should I do? My pot is 500k. I can use 40% of this as an annuity with inflation protection and 25% is needed tax free to clear mortgage, with rest invested in VUSA and 3 years of drawdown cash.
How can I get access to the famous excel?
I would love to buy an annuity, but they only start paying you when you are old. I would rather start getting paid now. I have social security (and even welfare without being required to have a job) when I get old enough to receive an annuity. I can't find a product that fills the gap between being 44 and 69 (or whatever my pension age is). I guess most of the FIRE community would appreciate such a product.
Similar returns to investment companies but seems to be safer, 200k would give you 8 k a year if you 67 plus your state pension and then any other pensions you may have.
Regardless of interest rates, the risk of early death and what happens to the pot is the nail in the coffin for annuities as an option. How ironic that appetite for certainty of income into your 90s overrides the very real risk that you may die in your 60s. Not only do your heirs lose a parent, they also lose a significant portion of the wealth they worked so hard to build.
Orrrr, covering the essentials allows you to be more aggressive with the rest of the pot's investments, and less likely to deplete it during market downturns.
@@slayerrocks2 Yes, but even at current rates, you still need to deploy a significant amount of capital to generate enough to cover the essentials. Most will reach break-even point on annuities well into their 80s. The certainty of income argument flies in the face of the one thing of which we individually cannot be certain; life expectancy. I’m not betting my kids’ wealth on the what happens to the wider population
@jamesheyes not everyone is the same.
If 50k Annuity covers my utilities and council tax and allows me to invest 200k in the stock market, that could result in me leaving 500k to my kids in 15 years.
If I had to be conservative, and invest 60% in bonds only 100k would be getting that exposure, so I leave them 400k.
The likelihood is that I would have to err on the side of caution when taking money out, so may have a more frugal existence.
Some years may see me depleting the principle to give me enough to live on.
When interest rates dropped, the insurance companies paid less, it was a big scandal. That combined with the outrageous commission on selling annuities really upsets consumers.
people hate annuities because of variable, index, and fixed annuities that get pushed. Income annuities are the only ones I would recommend.
Very interesting vid. 20k a year core is a fair wack given that we are assuming mortgages credit cards cars etc are all paid off - I am surprised Tim needs 20k + up to 15k spending money a year every year. That's more than I earn now. I can make tims pension go really far lol. I guess its totally different for every person.
It's all relative.
Funny enough, I too looked into fixed term annuities a month or more ago. I must say I continue to be astounded to see a 200K annuity paying 20.7K p/a over 10 years and with 50k cash at end of term. Never ever thought I would go the annuity route (not in a million years) but suddenly it's food for thought.
It becomes attractive as an alternative to other low risk investments in your portfolio. The benefit of an annuity is that it can offer higher rates than a government bond and because it's not market to market, you don't have put up with any volatility in the price.
Unlike other bond investors over the last year!
Sounds a good deal to me, who is it with?
I’m currently 34. 20k in pension pot. If my total contributions from now until 60yrs old paying £711 a month. What would my total pot look like at 60?
I like your style .. I am 50 and hate working ,lol. I semi retired at 36 . I live in Thailand and work in the UK every year for 3 months as a Carpenter. I have 2 houses that I rent out in the UK and live off the Rent /money earnt working . I have a Personal pension worth about £100k . I am currently Selling one of my houses and will DCA into stocks over the next 2 years . I have a small amount of Crypto ,Silver and gold . I should have £300k invested ,no Debt and a house Paying £700 a month . I will draw off the Savings @4% and spend the rent .. At 60 take the private pension and at 67 the state pension will kick in . If I run out of money I will sell the house at 70 (it's a cheap house £150k) . I arnt working anymore . I Know lots of older people and we simply dont spend much money as we get over 70 .. I have done everything already ,so have no need for a Porsche or 5 Start resort holidays . I can live well on £1500 a month in Thailand .. This should actually allow my money to grow .. Thanks for the Videos .
Hi James ,watched a lot of your videos,I really need some help with projections with my wife and myself sizeable pensions.
I am in nowhere land as to what to do.
Please help?
Hi Simon, if you'd like help there is a link in the description of my the video where you can book in some time to speak with me.
A tangential question. Presumably the law of large numbers could be applied to insuring people against the risk of needing to go into a care and nursing home in old age, with dementia of another degenerative disease that makes care at home eventually impossible,, when assessed against clinical need?
Has anyone ever worked out what it would cost to provide such an insurance policy for every person in the UK? The insurance could be delivered via National Insurance Contributions, levied for the first time on retirees, after they start receiving their State Pension. It would represent a dramatic new bargain with the electorate, in which everyone is protected against care home fees at a relatively low insurance cost per person..Those on low incomes would be protected by NUC thresholds, as now with working- age people. Wealthier people could buy a higher standard of care if they wished.
What would such a plan cost? What are the negatives?