It used to be mandatory to purchase an annuity to finance your retirement in the UK. Earlier this year, their Chancellor George Osborn removed this requirement, but said that annuities are still worth consideration. According to The Telegraph’s Steve Lowe, annuities are still an important part of retirement planning. His article, “Four reasons why we do still need annuities,” offers insight that is applicable to retirees in the United States as well. The article says that annuities should be a central piece of your retirement planning, even though they are no longer required after UK pension reform. Consider these four reasons why annuities should be taken into consideration when retirement planning.
Annuities can give you freedom in retirement. You are free to spend the income that you receive from your annuity products without any worry that you will lose that money. Other investments often involve more risk, higher costs, less certainty and sometimes even more complexity. Annuities, in conjunction with the state pension they receive in the UK, can be used to cover all of your basic living expenses. This holds true in the U.S. with Social Security and any pension income you might have from a job. Then you have flexibility to invest or spend your other money because you know that your basic costs will be covered.
The second reason to consider annuities is that they offer a good value for your money. You definitely need to shop around from different companies and review different products, but the guarantees offered give you great value. Your health and lifestyle help to determine your annuity income. It is also dependent upon your age and whether or not you choose to add a partner to your product. The UK offers “enhanced” annuities that give purchasers higher rates than “standard” annuity products for those who qualify.
The fact that annuities are actually insurance products means that they offer great protection to your financial plan. Money is pooled together so that you can combat the risks that are inherent as you age. The article points out that UK annuities are financially backed by very strict regulations and capital reserves. U.S. regulations are getting stricter and although there is no federal backing of annuity products (yet), states offer guarantees up to a certain limit. No matter how careful you are with your money, you are subject to market and longevity risk if you do not have the guarantees that come with annuity products.
Finally, annuity products are often misunderstood. When the UK Chancellor said that no one will have to buy an annuity product anymore, he added more to the end of that statement. He said that many people will still desire the certainty that comes with an annuity and he has made it easier for them to shop around for the product that best fits their needs. Before listening to untruths about annuities, do your research to determine their pros and cons. Get annuity quotes for your individual tailored situation. Annuities offer lifetime income, return of principal in the case of an untimely death, inflation protection and death benefits, among other things. The same reasons that annuities are still important to consider in the UK apply to those of us in U.S. as well.