subject: Understanding Benefits of Lifetime Annuities [print this page] Understanding Benefits of Lifetime Annuities
Lifetime annuities provide you with a lot of benefits, which probably make them the soundest investment for your retirement. Along with giving you lifetime regular income for as long as you live, lifetime annuities can be customized in many ways and come with many options that you can add for your specific needs.
To understand the importance of annuities, let's consider what would happen if you didn't have an annuity. Upon your retirement you would have to make withdrawals periodically from your pension fund. This would pose 2 problems:
If you withdraw too much, you may exhaust your fund while you are still alive and have to depend on your children or savings.
If you withdraw too little, you may pass away without really getting to enjoy your retirement the way you wanted.
A lot of people choose to invest their pension either in the stock market or mutual funds. However, this carries a certain amount of risk, in that your money could be doubled or halved. More importantly it does not give you any guarantee, and retirement is definitely not the time to live life on the edge.
Annuities beautifully fill this gap. Providers take your lumpsum and in return provide you with a regular fixed income. Think of it as loaning someone a principal amount and receiving it back in EMI coupled with interest (called an annuity rate). Only advantage here is that the annuity continues to pay out till the day you die. There is absolutely no risk involved and based on your pension fund amount, the annuity rate and a few other factors, you are guaranteed an income for the rest of your life.
This guarantee comes about because the provider invests your pension fund in fixed interest investments, and applies what is called as a mortality cross subsidy. When you purchase an annuity, the provider calculates your life expectancy. A lot of people pass away before they're expected to, and the provider thus makes a profit. This profit is then used to pay for those who outlive their expectancy.
All said and done, annuities provide maximum safety, not just for you, but also for your family. Joint lifetime annuities can continue paying income to your spouse/partner or dependent children even after you're gone. Enhanced annuities can pay a higher income than standard annuities if you suffer from cancer, stroke or diabetes that can affect your life expectancy. The higher income can significantly help you cope with medical bills and prescriptions. You can also opt for market-linked annuities that can be invested in stocks.
Purchasing annuities is equally easy. You can look to exchange your pension or current annuity for a brand new annuity in the open market. The easiest way is do this through a website that get you quotes from leading providers in the UK and helps you compare information. All of this happens in a matter of minutes, as you type in details and wait for a reply. Most website will also offer handy resources as well as 24 hours customer care to help you make a choice.
