What do you need to know about the inner workings of annuities?


[The following is from a guest poster based in the UK]

Trying to save for retirement might not seem like the most sensible thing to do, especially as many are finding their incomes squeezed by a combination of low wage growth and high inflation. Despite what’s going on, it’s still a sensible thing to do, as you can never be entirely sure of what the future has in store for you.

Setting aside a small proportion of your weekly or monthly pay at work could make a big difference. If saving some 30 years before you retire, if you have saved around £50 a month for three decades, you will have some £18,000 to work with plus interest. Spreading that money over time is something you may have to think carefully about though.

Myriad of pension choices

Anyone who has retirement on the horizon will have a number of different pension products to choose from, each of which varies in how your money is distributed and supplemented. One of the most sensible things you could possibly do when your retirement income is concerned is to take out an annuity. Annuities are products which guarantee an annual payment from your pension pot.

At first glance, annuities can be a little hard to understand, especially if you’ve only heard about them for the first time. Fortunately, once you know the basics, they’re pretty easy to get the hang of. How they work is that they act as a form of insurance, paying out a defined percentage of your retirement savings each year for a certain amount of years.

Look out for the variables

There are several factors that gauge how much you receive from your annuity. If you have health problems, have worked in a dangerous job sector such as construction or have any habits such as smoking, then you’re likely to receive more each year as you’re not expected to live as long. Conversely, if you have a higher life expectancy than normal, you’re likely to receive less.

If you’re still a little in the dark about annuities, the annuity calculator from mypensionexpert may help. In the meantime, annuity rates are usually no higher than 6% for both men and women, so shopping around for the highest percentage may be best.

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