Different types of AnnuitiesDifferent types of annuities
When you retire, it can be tempting to succumb to the first fixed rate, level annuity quote you receive. However, with the average life expectancy now between 85 and 90, your annuity might have to pay out for more than 20 years - and, despite its low level at the moment, inflation can seriously impact your spending power.
It is therefore sensible to shop around and there are various options to choose from if you want to make the most of your money. For example, there is an index-linked annuity, which is tied to the rate of inflation, and there is also an escalating annuity, which rises at a fixed rate each year, regardless of inflation (in other words, some years the rise may be greater, some years it may be less). For the more adventurous, you could even link your income to the ups and downs of investments (providing you are prepared for the risks). All of these options are likely to offer a lower starting income than a level annuity, but over the long term, your ability to afford a consistent lifestyle could be better protected.
Of course, your circumstances may mean a mixture of annuities is appropriate. Or, depending on your appetite for risk and size of your fund, you might even have the option to defer the annuity purchase. If you can leave it until later in life, or if you suffer from poor health, the potential for higher income from a level annuity may outweigh other issues. Whatever you decide, make sure you shop around. You can’t change your annuity once you’ve bought it, so pick the right one.
