# Annuity at age 50



## fistophobia (29 Apr 2018)

Anyone know if I can buy an annuity at age 50?
If so, what provider and ballpark rate would I get?

I will be retiring, and want to put my pension pot into a guaranteed income stream.
Not looking for any cash lump-sum, or ARF stuff.
Reason being, I have enough investments outside of pension, to live on.

thanks


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## Sarenco (29 Apr 2018)

You would be doing well to get around 2.75%.  Not indexed, obviously.

If you have enough to live on why don't you just leave your pension alone until you need it?  Interest and capital gains will still compound away in a tax-free environment.

Not taking any available tax-free lump sum is a mistake in most circumstances.


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## Gordon Gekko (29 Apr 2018)

If you have enough to live on elsewhere, why would you want an annuity?

Just leave your retirement benefits untouched as long as possible, basically until age 75.


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## fistophobia (29 Apr 2018)

I was thinking of locking in market gains, and de-risking.
Or I could move the pension into more cash-like securities.


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## Sarenco (29 Apr 2018)

Unless you are extremely wealthy, you are going to have to retain a substantial allocation to high-risk assets if you are going to retire at 50.  You could have 40+ years to fund from your savings.

High-risk assets (with high expected returns) are better housed in tax-advantaged retirement accounts, with low-risk assets (with low expected returns) in taxable accounts.  It's important to consider all your accounts in combination.

Annuitising a pension pot @50 if you have other assets to fund your lifestyle makes absolutely no sense.


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## Steven Barrett (30 Apr 2018)

A single life annuity guaranteed for 5 years with no indexation will get you an annuity rate of 2.8665%. But I agree with the other posters, there is no reason to lock in our money at such as poor rate. Give it a few years and there's a good chance you'll get that kind of return from deposits. You'd be better off sticking the money into an ARF and drawing down the money when you need it. You have another 11 years of investment before imputed distribution kicks in. 

You can always leave your money in the pension until rates improve or if you put it in an ARF, the ARF can buy an annuity in future years. Besides the 30 day cooling off period, there's no going back from an annuity. 


Steven 
www.bluewaterfp.ie


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## mtk (30 Apr 2018)

Sarenco said:


> Unless you are extremely wealthy, you are going to have to retain a substantial allocation to high-risk assets if you are going to retire at 50.  You could have 40+ years to fund from your savings.
> 
> High-risk assets (with high expected returns) are better housed in tax-advantaged retirement accounts, with low-risk assets (with low expected returns) in taxable accounts.  It's important to consider all your accounts in combination.
> 
> Annuitising a pension pot @50 if you have other assets to fund your lifestyle makes absolutely no sense.


I agree 
.sarenco 
Without hi jacking the thread in terms of using capital in non pension assets vs drawing from an Arf to fund living costs which would you suggest. ?
Thanks


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## Sarenco (30 Apr 2018)

mtk said:


> Without hi jacking the thread in terms of using capital in non pension assets vs drawing from an Arf to fund living costs which would you suggest. ?


The former - the longer taxes can be deferred the better.


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## mtk (15 May 2018)

Sarenco said:


> The former - the longer taxes can be deferred the better.


thanks Sarenco 
I think usually I agree but if you will have to drawdown from the arf to cover expenses in say 5 years time  because personal savings wont cover them then drawing the arf now  may be a good idea to avoid paying income tax  on the bigger drawdown later.  
So use savings to supplement a lower drawdown  over a longer period.
Does that make sense


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## Sarenco (16 May 2018)

Well, in my opinion, the longer assets are left alone in an ARF to (hopefully!) grow in a tax free environment the better.  

Bear in mind that you effectively have to draw down 4% (5% after you hit 70) of the value of the ARF on an annual basis in any event.  Draw down more quickly than that and there is a significant danger that you will run out of money during your lifetime.


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## Bob2018 (16 May 2018)

Hi Sarenco - How safe am I if I draw 4% each year from my ARF & AMRF from age 65? Thanks for all your help. And where's the best place to invest the ARF (the type of fund) to have the best chance of making our retirement fund last until the bucket gets kicked?


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## Sarenco (16 May 2018)

Unfortunately, there is no consensus on the right approach here Bob but I can tell you my own plan for what it's worth.

I intend to have around 15 years' worth of living expenses in "safe assets" (cash and bond funds) when I retire, with the balance (if there is a balance!) in equity funds.  I will then keep roughly that balance between equities and cash/bonds constant throughout retirement and will just accept whatever returns/lifestyle that provides.

I will draw whatever I'm effectively required to from my ARMF/ARF but will try not to spend more than 3.5%, plus inflation, in any given year.  I may well annuitise all or a portion of any remaining pension pot if/when I hit 70 or so.  We'll see.

Hopefully, I will also qualify for some form of State contributory pension at some stage but I'm not banking on it.  I hope to own my home mortgage-free at that stage.

I might well tweak that plan in the future but that's my current thinking.

Hope that helps.


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## Conan (16 May 2018)

Bob
4% is the minimum drawdown from an ARF but that increases to 5% after age 70.
How long the ARF fund lasts depends on two main factors:
- the amount of drawdown each year, and
- the rate of investment growth (hopefully) over time.

The rate of investment return will largely depend on the type of fund you invest in. Clearly a low/no risk fund such as Cash, will hardly deliver a positive return after you take management charges into account. So in effect your fund will gradually fall by 4%/5% pa over time.
On the other hand, if you are prepared to take some investment risk (say a Managed Fund of some type) then you might expect to generate a return which might cover the drawdown  + management charge. BUT THIS ENTAILS TAKING INVESTMENT RISK which might pay off or might not. Some years you might get a very positive return (10%+) but in other years you might have negative returns (-10%). So can you live with that level of volatility?

It is important to remember that a male retiring today at say 65 has an average life expectancy of 20 years. If you really are prepared to take a long term investment perspective (20years) then a Managed Fund (of some type) may be a reasonable strategy BUT you must be prepared to live with some years of poor/negative performance. If you are the type of investor which might panic if markets head south for a year or two, then perhaps such an investment strategy is not for you. And the reality is that whilst many investors might say that they would not panic, its only when it happens you will find out.
If one goes back to early 2009, after circa 2+ years of very negative fund performances (-20/30%)  that was when lots of Managed Fund investors cut and ran, switching into Cash. And as it happened, March 2009 was the low point and markets picked up significantly in the following 5/6 year. 
In my opinion, a 4%/5% drawdown rate is not unreasonable. But the other side of the coin is how you will invest the fund. If Cash, then your fund value will gradually deplete over time. You can still draw down 4%/5%, but that will be a gradually reducing amount. But with no investment risk you can sleep easier.
There are a number of calculation models you can use to show how long the fund might last based on different levels of drawdown and different rates of return. Perhaps seek professional advice.


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## moneymakeover (17 May 2018)

W Buffett

https://www.thebalance.com/warren-buffett-90-10-retirement-strategy-4159839

https://amp.cnn.com/money/2018/02/21/retirement/warren-buffett-investing-strategy/index.html


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## Bob2018 (17 May 2018)

Thanks Sarenco, Conan and Moneymakover. I'll have a proper look at your replies later.


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