Tag Archives: Annuities

Get the lowdown on the Two Types of Annuities

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An annuity is one of the most popular ways to optimise financial savings and use them to provide a regular income during retirement. Annuities are sold by insurance companies that offer this regular income in exchange for a lump sum – usually from the pension pot. There are many different types of annuities available on the market – but the two main types of annuities are fixed lifetime annuities (also known as level annuities), and variable annuities.

Fixed Annuities

Fixed lifetime annuities – fixed annuities are annuities where the income you receive remains fixed for the rest of your life – or until a predetermined period of time. You receive the income at fixed intervals, either monthly, quarterly, every six months, or yearly. The income you get from a fixed annuity depends on various factors such as the size of your pension pot, current annuity rates, your health and lifestyle, gender, and even your address. This is the most popular types of Annuities.

All these factors help the insurance company work out how much they can afford to pay you as a fixed regular income. You can also add extra features to a fixed annuity such as joint life option – where the income continues to be paid to the surviving partner, or early death guarantee, where the annuity payments continue for a fixed period even if you die during that period.

Fixed annuities can offer the security of a fixed regular income throughout your life. However, they do not offer protection against rising inflation or increasing spending, nor do they benefit from any upward movement in the financial markets in the future. There are different types of annuities that can offer a variable income during retirement.

Variable Annuities

There are different types of annuities that offer variable income during retirement. Variable annuities provide a change in income over the course of the annuity – and this may be due to different factors, depending on the type of variable annuity.

Inflation or RPI linked annuities are linked to the rates of inflation. High levels of inflation in the future will mean that you receive more income and thus have more spending power. On the other hand, fixed annuities offer a fixed income throughout the term of the annuity, so your income could lose its value over time if inflation continues to rise – which it always will.

Some other types of annuities that offer variable income include percentage increasing annuity – where the income increases at regular intervals at a fixed percentage, which is usually 3% or 5% per year. Both these as well as RPI linked annuities generally pay a lower income than fixed annuities in order to compensate for the future rises in income. You can also get annuities with an investment linked component. The investment component is linked to an external investment – so the income you receive will depend on the performance of that external investment and is not guaranteed.

Some other types of annuities include joint annuities where you can have your income paid to a partner after you are gone, and enhanced annuities, where the insurance company pays more based on a lower than average life expectancy. Enhanced annuities are available to those who meet certain health and lifestyle criteria such as regular smoking, health conditions like heart disease, obesity etc.

Fixed annuities have the advantage of providing a guaranteed, lifelong secured income. Variable annuities may offer a variable income which can help combat rising inflation, rising future expenses etc. However, variable annuities will generally pay less than its fixed counterpart in the initial stages. There are many different types of annuities available in the market and the key to finding an annuity or annuities that suit your needs is to shop around, understand each product and then make an informed choice.

Impaired Annuities Explained

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Annuities have become increasingly popular and reliable in ensuring the financial security of individuals as they age and move in to their older phases of life. There are different annuities available and choosing the right annuity with the right provider can help to ensure a stable financial life during the years of retirement. With an economy that is often tumultuous and unpredictable, many individuals are seeking ways in which to ensure that their retirement years will be as free from financial worry as possible. For some, an impaired annuity offers the most lucrative and stable means to do so.

Eligibility Factors

Annuities are offered by insurance companies and are financial products used to help secure financial stability in the years ahead. They can be purchased in a couple of different ways, either through a payment system or in one larger lump sum. At a later date, the annuity is dispersed through monthly payments to the annuitant directly.

There are several advantages to annuities, perhaps the biggest of which is that the money in the account is eligible for tax-deferment until the funds are withdrawn.  This can be hugely impactful during retirement years in that most individuals make less money during retirement than during their working years, meaning that the tax break can be increasingly more beneficial after retirement.

Annuities are paid out on a monthly basis, most often until the death of the annuity’s owner.  To ensure the appropriate timing of the annuity payments, an insurance actuary will estimate the life span of the annuity’s owner to determine the most appropriate payout each month.  There are several different factors that are considered when the lifespan is predicted. One of these is the health condition of the annuity owner.

An impaired annuity becomes an option for those individuals who have a physical condition or health concern that can be expected to decrease their life expectancy.  For those with a qualifying condition, more money from the annuity can be received on a monthly basis, since the term of the annuity is expected to be shortened. The qualifying conditions for an impaired annuity can vary but there are several that are very commonly seen by insurers. These include diabetes, heart disease and high blood pressure.

In the United Kingdom, annuity accounts are typically converted from retirement pensions. In order to qualify for an impaired annuity in the UK the expectation is that the annuity owner will not live for more than four or five years. The conditions most often accepted under an impaired annuity in the UK include cancer, stroke, heart disease and major organ failure. In the UK, impaired annuities can also sometimes be offered to residents in nursing homes. They may even be purchased rather quickly to ensure payment is prompt.

Advantages of Impaired Annuities

To qualify for an impaired annuity, the individual must have their medical history reviewed and confirmed. However, the advantages to qualifying for an impaired annuity can be tremendous. For those individuals that qualify, there is no way to verify that the years lived will be shorter than those individuals who do not qualify for the impaired annuity. That means that for those who qualify for the impaired annuity, the financial advantage can be quite beneficial if they live past the amount of years predicted given their health condition(s).

Most insurance estimates predict that an individual can receive approximately 30% more money with an impaired annuity than they would with a standard annuity.

Annuities present a way to safeguard financial security during retirement years. However, for those individuals who qualify for an impaired annuity, the increased income during what may be the last years of life can prove to be even more beneficial.

For those who qualify, the benefits of an impaired annuity far outlast those of a standard annuity.

Fact is 60% of People Could Qualify for Enhanced Life Annuities?

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Many consumers approaching their retirement years, if not most of them, choose to at least look in to the possibility of investing in an annuity to help fund their lifestyle once they have stopped working. For those who do decide upon purchasing an annuity, there are several different options available. Not only are there a variety of different types of annuities but there are also several enhancements and add-ons that can be attached to certain annuities. For many consumers, the sheer number of options available can make choosing an annuity incredibly challenging. This is why each consumer should consult with an independent financial adviser. Many consumers are missing out on several enhancements available to them, including enhanced life annuities, because they do not have all of the information necessary to help them make educated decisions on how they will fund their retirement years.

Enhanced annuities allow consumers to receive higher levels of income if they have certain life threatening medical conditions. These enhanced annuities operate under the premise that the insurer can pay out higher levels of income to these consumers because it is assumed that the medical condition(s) in question will shorten the life expectancy of the consumer. This allows the consumer to pay out for a much shorter period of time.

There are several advantages to investing in an enhanced life annuities, the first of which is the higher payout. Depending on the medical or health condition, consumers can receive up to 40% more than they would with other annuity purchases. The enhanced life annuity is not subject to fluctuations based on the markets or other investment conditions. Consumers do not have to partake in any regular or ongoing medication conditions. Therefore, consumers do not have to worry about their income decreasing if their health condition improves. Knowing exactly how much money will be received and knowing that it is guaranteed and will never decrease allows the consumer to budget for their future. This budgeting can be for every day or every month expenses or it can be to anticipate a large life purchase or to pay down debt.

There are very few disadvantages to purchasing an enhanced life annuity. The first of these is that the consumer must explain their applicable medical and health conditions. Therefore, there is far more personal disclosure necessary to purchase an enhance life annuity than is the case for a standard annuity. The only other disadvantages associated with an enhanced life annuity are those that are associated with all annuities. These include that annuity payments may not keep up with the increased cost of living. It is also impossible for a consumer to vary their income payments once they have already agreed upon the annuity logistics. For any consumer who has a very short life expectancy, it may be better for them to invest in another form of retirement investment such as enhanced equity release, income drawdown, phased drawdown, and phased retirement. This would better equip the consumer to maximize all of their death benefits while receiving the highest level of income possible for their unique situation.

No matter what the choice by the consumer, consulting with an independent financial adviser should be the first action taken when deciding how to invest in retirement. With so many options available, many consumers are ill-equipped to make the right decision for their personal situation. Secondly, they may not even know all of the options available to them. That accounts for why so many consumers are inadvertently bypassing the possibility of qualifying for an enhanced annuity.

Read the Latest Tips and Tricks with an Annuity Guide

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As consumers approach their retirement years, they can spend a great deal of time and energy on determining exactly how they will fund their lifestyle after they have ceased working. For many, this means investing in some kind of annuity with the savings they have deposited in their pension pot. However, this is not the only option available to consumers and even if it were, there are several different types of annuities, all of which offer different options to consumers. With consumers having very different and unique situations, it is important that the consumer chooses wisely when purchasing any kind of investment, including an annuity. Consulting with an annuity guide can be a solid and reliable way for consumers to get the information they need in order to make an educated guess on the financial well-being of their retirement years.

An annuity guide can offer an objective opinion to most consumers. Each consumer has a unique lifestyle and certainly has unique needs.  While asking family and friends for opinions and advice can be worthwhile, consulting an annuity guide can be far more objective and can lay out most of the facts related to purchasing an annuity. It can often be a more reliable resource when trying to decide how to invest in retirement.

An annuity guide has other benefits as well. For one, it can be the most updated version of information available on the current market. That means that it allows consumers to stay current on everything affecting annuities at any given time. This means that consumers are able to make decisions based on accurate and up-to-date information. Using more than one annuity guide can also be helpful to consumers and can provide them with all of the information they may need when choosing the right annuity for their particular situation. With so many annuities available and on the market, it is crucial for consumers to get all of the information they can in order to make their most educated guess on choosing the right annuity for their particular situation.

There are several factors that go in to determining which annuity is the right choice to help fund retirement, or if an annuity is the right choice at all. An annuity guide can help consumers to make the most educated guess for their unique situation. Consulting more than one annuity guide can give consumers more than one objective view on annuities.

Which Retirement Annuity is Right for You?

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Consumers have a variety of options available to them as they approach their retirement years. Not only do consumers have to choose between different investment strategies, but within those strategies lie another series of options available to the consumer. This is especially true when it comes to retirement annuities, a very popular option for many consumers. Retirement annuities offer several unique benefits to the consumer. However, there are several different annuities from which to choose, which can present a challenge to the consumer as they choose between their options. Each retirement annuity offers unique advantages to the consumer and with so many options there is one available for every unique consumer situation

Conventional Annuities

Conventional annuities work best for those consumers who are most focused on stability. This retirement annuity guarantees a level of income for the rest of the consumer’s life, regardless of any performance in the financial markets.

Variable Annuities

Variable annuities are a form of the retirement annuity that works best for those consumers interested in taking a risk. These income payments are typically lower than a conventional annuity but can pay out higher return as they are linked to investments in the financial markets.

Investment-linked Annuities

This retirement annuity is linked to specific underlying investments and can offer large payments to the consumer. Similar to variable annuities, this type of retirement annuity is a best fit for those consumers who are willing to take a risk with their retirement and pension savings.

Enhanced Annuities

Enhanced Annuities are a very unique kind of retirement annuity. This annuity is perfect for those consumers who are looking to take advantage of a higher annuity payment, based on their health or lifestyle status. This retirement annuity does require a specific eligibility requirement but can be worthwhile the assessment process for those who qualify, as payments are  usually increased since the insurer assumes that given the health condition, the consumer will have a shortened lifespan.

Fixed Term Annuities

Consumers who are looking for some more flexibility with their investment will benefit from a fixed term annuity. This retirement annuity offers a set income amount over the course of a predetermined period of time. This retirement annuity allows the consumer to budget for the period of time in which they are receiving payments, without having to worry about any impact from the financial markets, as the income is guaranteed for the predetermined time period.