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
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.
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!
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.
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.
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. 😂
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.
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.
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 !
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.
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
The snag with the annuity plan is that in a couple the annuity benefits are lost on first death. Yes there are joint life annuities availble but add on some inflation proofing and the rates are paltry. If instead another investment vehicle is used the funds that would otherwise be lost on first death would pass to the spouse/civil partner tax free.
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.
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.
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.
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 :-)
i though I had my pension all planned out, but I did not realise that a 'fixed term' annuity was a thing. It has given me ideas about using some of my SIPP in this way for the first 12 years until my state pension kicks in. I have also talked to a few people in the industry about my plans and no one has ever mentioned this option to me. I was dead against annuities, but a little less now. Food for thought. Thanks
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.
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....
Hi James, great content - your videos are fantastic. I watched this with a flip mindset - I have mostly DC pensions with an older DB one (and my wife has an NHS DB one). I'd been thinking sbout getting transfer valuations on my DB one, but realise this could be a useful part of a balanced plan....
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.
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 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.
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 TH-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, 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. 👍🇬🇧
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.
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.
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!
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!
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.
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.
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.
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
My plan is to use about half my pension pot to buy an annuity and the rest for drawdown. The money I'm planning on using for the annuity is in a scheme which moves gradually from stocks to bonds during the ten years before retirement which I believe makes sense.
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
At last, a video that talks about annuities! One question I had to struggle with recently: given a pension policy that came with a guaranteed annuity rate, how high does that rate need to be to make it worthwhile forgoing the tax free cash and converting all of it to annuity?
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
James - You should do a video on Purchased Life Annuity and the different tax treatment compared to Pension Life Annuity. With UK 10 and 30 Year gilts at 10 year highs and with unused Pension pots subject to IHT, annuities are now more attractive. However if you have cash then you get a higher return than the same sum from a Pension (because tax is deemed to have already been paid on cash). Apparently only Aviva and Canada Life offer them. Would be good to hear your view!
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.
You can buy a long dated UK Govt Gilt maturing in the 2050s. Behaves like an annuity with twice yearly interest payments from govt, regarded as risk free if held to maturity and you (or your estate) will keep capital invested to pass on to your children rather than it going to the insurance company. And no IFA fees too.
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
It looks to me like there will be a global sovereign debt crisis. Governments are spending to infinity without stopping. What happens to annuities if that happens?
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.
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.
@@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.
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.
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!
Didnt hear you mention the inheritance issue either. when you die, if you have no spouce set up to take the income then that's its game over thanks for playing, the insurance company keeps it all! There are better investment vehicles, Schroders offer a bond that pay a fixed income but keeps the money invested for you, so your capital can still grow and with if your fixed income and it avoids means testing should you go into care etc.
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 if i have taken tax free from my pension already 1) how would you put this portion into your model? 2) when i retire will i still recieve the full tax allowance on my income (including the income from this particular pension)
I have often considered putting some of my retirement account into an annuity. I have no heirs, so I am not concerned with leaving anyone money. What I want is to have a guaranteed income for life. My dad is 99 and still kicking. So, my retirement account might not last me my whole life. But an annuity would. It might actually give me more than I would otherwise have had. And if I died early, I still would have lived with a guaranteed income. I don't care what happens to the money when I go.
Upside is inflation protection. Downside is hassle of management, and uncertainty over empty periods, bad tenents, maintenance, insurance, regulations, taxes.
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…
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.
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
You have some fantastic content on your channel. At 53 years old, my wife and I achieved a net worth of $1 million back in 2017. Fast forward five years, and it has grown to $2.4 million. Despite our combined annual salary of just over $100,000, we have adopted a frugal lifestyle. We continue to drive older cars, prepare meals at home, and make use of leftovers. Additionally, we have two children currently in college. Fortunately, we had saved for their college expenses, and they are contributing by working part-time. As a result, they will graduate without any student debt.
That right, I started investing sometime in 2018 and by late 2021, I pulled out a profit of over $750,000 with no prior investing knowledge or skill, I was basically just following the guidelines set by my financial advisor, so you don't necessarily need to be a perfect investor or do the hard works, just have a professional who guides & mentors you.
We must consider safer investments with promising returns in order to plan for the future. If you approach investing with a five-year perspective and simply DCA whenever you receive a check. Under the direction of my investment advisor, ’JULIE ANNA HOOVER" whose expertise in portfolio diversification is unsurpassed and client-focused, my portfolio has gained almost $643k since January 2022.
thank you for this tip , I must say, JULIE ’’ appears to be quite knowledgeable. After coming across her online page, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.
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.
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.
@@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?
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
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.
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.
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?
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.
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.
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.
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...)
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.
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.
At 9:25, @jamesshack says that to be more tax efficient, Tim could buy half the annuity and his wife the other half to make the best use of both their income tax allowances. Maybe I misunderstood, but the money that Tim has paid into his pension can only be used to buy an annuity for himself not his wife (other than potentially using the tax-free cash lump sum). So where is the income tax benefit?
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.
Hi James, I retired at 55 and had a SIPP that i used to drawdown on until last year.Due to stock market volatility I transferred to a fixed 6 year gauranteed annuity to get me to my official retirement age. I had a tax free lump sum that I used to top up my annuity which is invested and returns me 6% per annum. I will go over the tax threshold slightly but this strategy works for me. If I make it to 67 the state pension kicks in, my annuity ends and i either buy another one or go back to draw down. Interested to hear your take on this strategy as it works for me and can sleep at night.
I am just 65 and planning my retirement now. Looked at annuity but to get it index linked in some way is very expensive. So many variables. I have state pension next year and two small DB schemes which will give me in total about £25k per year and then £400k cash. And £600k in drawdown. But at one stage I thought the annuity was a good option but the inflation element could destroy it.
It's expensive because it is a big risk. Take the last three years as an example, if you did not have indexation, you would have lost 20% of your purchasing power.
@@JamesShackprecisely. But also imagine if you had not taken out inflation linking. So in periods of low inflation annuities are not attractive because interest are low. But they are safer. In periods of high inflation annuities get good rates but inflation linking costs. It’s a gamble to take out an annuity on a good rate with no inflation linking hoping that inflation doesn’t go up much. I am surprised so many people have opted for this. But preference of bonds has hurt me. So it’s a mess. Thanks Liz Truss.
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!
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?
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?
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.
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!
Me too.
Me too!
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!
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. 😂
Probably He hasn't got mortgage?
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.
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.
Watching from Zimbabwe. Thank you. Great video!
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 !
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
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
I've been thinking about an Annuity these past 12 months. Thanks for the tools.👍
I've just come across your site and am already impressed with your content. Cheers.
The snag with the annuity plan is that in a couple the annuity benefits are lost on first death. Yes there are joint life annuities availble but add on some inflation proofing and the rates are paltry. If instead another investment vehicle is used the funds that would otherwise be lost on first death would pass to the spouse/civil partner tax free.
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.
id like to see that
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!
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.
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 :-)
i though I had my pension all planned out, but I did not realise that a 'fixed term' annuity was a thing. It has given me ideas about using some of my SIPP in this way for the first 12 years until my state pension kicks in. I have also talked to a few people in the industry about my plans and no one has ever mentioned this option to me. I was dead against annuities, but a little less now. Food for thought. Thanks
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!
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....
Average UK median salary is £38k. Mean average is around £45k.
Hi James, great content - your videos are fantastic. I watched this with a flip mindset - I have mostly DC pensions with an older DB one (and my wife has an NHS DB one). I'd been thinking sbout getting transfer valuations on my DB one, but realise this could be a useful part of a balanced plan....
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!
Never heard of a 'bind ladder'! Thanks for that!
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 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.
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 TH-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, 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. 👍🇬🇧
very comprehensive information. I haven't heard this all in one place before.
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.
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.
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!
JS, Thank you great content much appreciated 😊👍
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!
it all depends if you wish to leave money to your kids or anyone else if you dont annuity could be the way
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.
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.
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.
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
My plan is to use about half my pension pot to buy an annuity and the rest for drawdown. The money I'm planning on using for the annuity is in a scheme which moves gradually from stocks to bonds during the ten years before retirement which I believe makes sense.
A very useful video thank you 🙏
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.
At last, a video that talks about annuities! One question I had to struggle with recently: given a pension policy that came with a guaranteed annuity rate, how high does that rate need to be to make it worthwhile forgoing the tax free cash and converting all of it to annuity?
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
James - You should do a video on Purchased Life Annuity and the different tax treatment compared to Pension Life Annuity. With UK 10 and 30 Year gilts at 10 year highs and with unused Pension pots subject to IHT, annuities are now more attractive. However if you have cash then you get a higher return than the same sum from a Pension (because tax is deemed to have already been paid on cash). Apparently only Aviva and Canada Life offer them. Would be good to hear your view!
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.
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.
You can buy a long dated UK Govt Gilt maturing in the 2050s. Behaves like an annuity with twice yearly interest payments from govt, regarded as risk free if held to maturity and you (or your estate) will keep capital invested to pass on to your children rather than it going to the insurance company. And no IFA fees too.
As explained in the video, the trade off is keeping the capital to pass on, or a 30% uplift in income from the annuity.
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
Excellent, thank you.
Nice work Mr Shack
You're welcome!
It looks to me like there will be a global sovereign debt crisis. Governments are spending to infinity without stopping. What happens to annuities if that happens?
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.
I'm interested in what Tim was going to do with his home? Could he not use the equity from his home?
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.
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.
Great explanation!
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!
Didnt hear you mention the inheritance issue either. when you die, if you have no spouce set up to take the income then that's its game over thanks for playing, the insurance company keeps it all! There are better investment vehicles, Schroders offer a bond that pay a fixed income but keeps the money invested for you, so your capital can still grow and with if your fixed income and it avoids means testing should you go into care etc.
Yes came hear to say this.
I've never understood why you'd take a cash lump sum, surely buying a bigger annuity is better?
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 if i have taken tax free from my pension already 1) how would you put this portion into your model? 2) when i retire will i still recieve the full tax allowance on my income (including the income from this particular pension)
I have often considered putting some of my retirement account into an annuity. I have no heirs, so I am not concerned with leaving anyone money. What I want is to have a guaranteed income for life. My dad is 99 and still kicking. So, my retirement account might not last me my whole life. But an annuity would. It might actually give me more than I would otherwise have had. And if I died early, I still would have lived with a guaranteed income. I don't care what happens to the money when I go.
Hi. Maybe simple question, but what if I bought two flats for rent instead?
Upside is inflation protection. Downside is hassle of management, and uncertainty over empty periods, bad tenents, maintenance, insurance, regulations, taxes.
I had no considered a fixed term annuity, I may consider this.
It's definitely one to keep an eye on.
i woudl consider buying an anuity however my concern is nothing remaining then goes to my children in inheritance
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…
people hate annuities because of variable, index, and fixed annuities that get pushed. Income annuities are the only ones I would recommend.
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.
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
You have some fantastic content on your channel. At 53 years old, my wife and I achieved a net worth of $1 million back in 2017. Fast forward five years, and it has grown to $2.4 million. Despite our combined annual salary of just over $100,000, we have adopted a frugal lifestyle. We continue to drive older cars, prepare meals at home, and make use of leftovers. Additionally, we have two children currently in college. Fortunately, we had saved for their college expenses, and they are contributing by working part-time. As a result, they will graduate without any student debt.
That right, I started investing sometime in 2018 and by late 2021, I pulled out a profit of over $750,000 with no prior investing knowledge or skill, I was basically just following the guidelines set by my financial advisor, so you don't necessarily need to be a perfect investor or do the hard works, just have a professional who guides & mentors you.
Mind if I ask you recommend this particular professional you use their service? i have quite a lot of marketing problems.
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thank you for this tip , I must say, JULIE ’’ appears to be quite knowledgeable. After coming across her online page, I thoroughly went through her resume, and I must say, it was quite impressive. I reached out to her, and I have booked a session with her.
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.
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.
Looking at buying in May this year 10 years income
You briefly mention "FSCS protection" at 7:25; how do you think about counterparty risk when considering an annuity?
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?
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
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.
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.
Why isn't this taught in schools instead of flippin' differential calculus?!! Thanks for your explanations James and I appreciate the effort put in.
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?
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?
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.
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.
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.
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 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.
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.
All the best for Tim!
At 9:25, @jamesshack says that to be more tax efficient, Tim could buy half the annuity and his wife the other half to make the best use of both their income tax allowances. Maybe I misunderstood, but the money that Tim has paid into his pension can only be used to buy an annuity for himself not his wife (other than potentially using the tax-free cash lump sum). So where is the income tax benefit?
sounds great to me.. take my money and give me guaranteed return for life
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.
Hi James, I retired at 55 and had a SIPP that i used to drawdown on until last year.Due to stock market volatility I transferred to a fixed 6 year gauranteed annuity to get me to my official retirement age. I had a tax free lump sum that I used to top up my annuity which is invested and returns me 6% per annum. I will go over the tax threshold slightly but this strategy works for me. If I make it to 67 the state pension kicks in, my annuity ends and i either buy another one or go back to draw down. Interested to hear your take on this strategy as it works for me and can sleep at night.
That is one way to do it.
I am just 65 and planning my retirement now. Looked at annuity but to get it index linked in some way is very expensive. So many variables. I have state pension next year and two small DB schemes which will give me in total about £25k per year and then £400k cash. And £600k in drawdown. But at one stage I thought the annuity was a good option but the inflation element could destroy it.
It's expensive because it is a big risk. Take the last three years as an example, if you did not have indexation, you would have lost 20% of your purchasing power.
@@JamesShackprecisely. But also imagine if you had not taken out inflation linking. So in periods of low inflation annuities are not attractive because interest are low. But they are safer.
In periods of high inflation annuities get good rates but inflation linking costs.
It’s a gamble to take out an annuity on a good rate with no inflation linking hoping that inflation doesn’t go up much.
I am surprised so many people have opted for this. But preference of bonds has hurt me. So it’s a mess. Thanks Liz Truss.
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.
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?
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 :)
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!
How can I get access to the famous excel?