Often considered “boring”, overlooked for their lack of zip and flexibility, a guaranteed income for life is not to be sniffed at
Annuities are often overlooked by advisers in structuring client portfolios. The cynic in me says “of course, they don’t pay enough for advisers to consider them”, but I think the reality is that many investors and advisers alike have historically shunned them because of their perceived “low returns”. Who could blame them, with the markets consistently delivering double digit returns, its very hard to consider single digit investing.
Now that we have seen that Australia is not immune to global meltdowns, investors have found themselves considering secure alternatives (you only have to look at the inflows to term deposits to see what I mean).
Annuities may be boring, but do you really want to gamble with your retirement?
One of the easiest and most secure ways of ensuring you receive a fixed income has been to purchase a lifetime annuity. Offering investors a fixed income for the remainder of their life, regardless of how long they live for, an annuity can be an attractive proposition for investors wanting to step away from running the gauntlet of the sharemarkets or the uncertainty of rolling from one term deposit to another.
Although you can bolt on options such as a residual value in the event of death or inflation proofing, the 2 main factors influencing the income you receive is your age (the older you are the greater the income), and sex (men receive a higher amount as women tend to live longer).
Our view is that the certainty offered by a fixed income has a definite place with the income investors’ portfolio. Those investors who don’t want to tie themselves in for life are also able to opt for fixed term annuities with a guaranteed return of capital at maturity.