There are a number of risks to consider before you purchase an annuity at retirement. here at Retirement Solutions we have consider 5 important ones for you.
1. Inflation – The purchasing power of your money will erode over time, so what you can but today for every £1 of annuity will reduce the longer you live.
2. Longevity
- Life expectancy is increasing – thanks to advances in medicine and science – but healthy life expectancy is not increasing at the same rate: although we are living longer in retirement, we are likely to spend a proportion of that time in poor health.
The following table shows the average life expectancy (LE) for males and females aged 65 today. This compares with the average term of ‘disability-free’ life expectancy (DFLE). This is defined as expected years of life free from limiting long-standing illness or disability.
Projected years of Life Expectancy (LE) versus Disability-Free Life Expectancy (DFLE)1
Source: Living Time
3. Changes to your cirumstances – such as the death of a partner, a divorce or change in financial circumstances such as repayment of a mortgage.
4. Annuity Rates – no one can predict what annuity rates will be at any point in time in the future, if you purchase an annuity today you know the rate attached to it. Annuity rates may go up or down in the future, but it is most likely they will go down for the foreseeable future.
5. Investment risk – that is the risk to your capital. Annuity purchase does not risk your capital, but there are other more flexible annuity options you may want to consider.
Sources:
1. Office for National Statistics (ONS) Health Statistics Quarterly Spring 2008 (2004 data)
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