What is the definition of procurement? To procure something is to plan and research its purchase, examine the product in all its aspects and to find the appropriate product that meets all the demands and needs of the buyer. As such, to procure can simply mean to buy, but with a far more analytical approach. When you buy an annuity, you are making an important decision that will affect your income during the rest of your life. An annuity once purchased cannot be reversed, and so buying an annuity is a decision that should be treated with some seriousness.
We may not realise it, but whenever we do buy something we are, in fact, procuring it. First of all we analyse our requirements, we try to understand what we need and why, next we determine a budget, consider different options, think about long term prospects and lasting power of the different options and then finally, make the purchase.
Therefore, don’t simply buy an Annuity; rather, look at it as procurement. After all, an annuity is not like purchasing an electric kettle or a pair of pillow covers. It is something that plays a significant role in retirement income; will have a huge impact on your financial security during retirement; and therefore has implications for the quality of the rest of your life.
When it is time to buy an annuity, pensioners have the right to explore the open market and shop around for the best annuity. This is known as the open market option. Despite this, a large proportion of people do not exercise this right and simply commit to the first annuity deal that is offered to them by their pension provider. Many people do not offer the same time and effort when they buy an annuity that they would to buying something far more insignificant!
Research has shown that shopping around for the best annuity is one of the most important steps in ensuring that you maximise your pension savings during retirement. Indeed, recent figures show that using the open market option to look for the best annuity deal could mean getting up to 46% more income during retirement. Not only that – shopping around also makes you aware of the different types of annuities available on the market so that you can choose one that truly suits your individual needs. Procurement involves reading reviews, understanding different options, shopping around, negotiating with sellers and finally, making a commitment to buy the product that best suits your requirements. These very same principles must be applied when you buy an annuity.
A Lifetime Annuity is a way to turn your pension savings into an income during retirement. While some annuities last for a fixed period of time such as five or ten years, a lifetime annuity can go on until the day you die. Lifetime annuities can therefore be a way to ensure that your savings provide a guaranteed income for the rest of your life.
There are different ways in which a pension fund can be used for financial security during retirement and annuities are one of them. You can purchase an annuity with a lump sum – which can either be all or part of your pension savings. How much income you could generate depends on the size of your pension pot and how much of it you wish to invest in an annuity. Up to 25% of your pension fund can be released as a tax free lump sum and a large proportion of people use this to invest in an annuity.
How much income you can generate also depends on other factors such as annuity rates, your lifestyle and health criteria etc. Just like enhanced mortgages – there are enhanced or impaired lifetime annuities for people with certain health and lifestyle indicators. A shorter than average life span allows annuity providers to pay out more than they would normally as the expected term of the annuity is shorter than average.
As mentioned earlier, a lifetime annuity is guaranteed to continue generating an income until the end of your life, and as such, can never be completely used up. It guarantees an income for as long as you live – which can be a significant factor at a time when people are living for longer than ever before. There are different types of lifetime annuities – such as level annuities and investment linked annuities.
You can also add additional features to annuities such as protection from inflation, joint annuities for a partner to continue receiving income after you are gone etc. Adding these bells and whistles to a lifetime annuity will affect the income you receive. For instance, inflation linked annuities increase over time – so the income received initially is normally much lower than you would on a level annuity.
Investing in a lifetime annuity is one of the most popular ways to provide financial security during old age. There are many different types of annuities and several annuity providers on the open market – the best way to find an annuity that will suit your individual circumstances is to shop around.
Annuities have become a popular investment choice for those consumers who are close to reaching their retirement age. There are several reasons why annuities work for many consumers, as they allow for guaranteed income and have several safeguards in place to ensure that the consumer at least maintains a certain level of income once they have stopped working. However, there are also some annuity risks associated with purchasing an annuity, especially certain annuities, as there are a variety of different kinds of annuities currently available to consumers. In order for those consumers approaching retirement to make the best decision available to them, they must know both the advantages and disadvantages to purchasing an annuity in an effort to help them fund their retirement years.
While annuities do guarantee a level of income for a designated period of time that does not mean that the amount of money in question will remain constant over time. That is to say that annuities do not factor in inflation unless the consumer chooses to invest in an inflation-linked annuity. That means that with a standard or conventional annuity, the consumer may end up with less money over time, given the impact of inflation on their pension savings. That being said, annuities are not all made equal. While the consumer can customize their annuity to some extent, these add-ons and enhancements typically cost more money. So, in order to alleviate some of these annuity risks, the consumer must invest more.
Another annuity risk is that the consumer simply does not have an opportunity to make much money on their investment. Therefore, they cannot continue to build their savings. For example, with a fixed annuity, the consumer is not able to make any money off of their investment. So while the consumer is guaranteed their income, they run the annuity risk of not ever being able to make more money off of their investment. Lastly, annuities are notoriously inflexible. This means that the consumer is unable to make any changes to their annuity, including payouts and enhancements, once the annuity has been purchased. Therefore, an annuity risk exists if the consumer finds themselves in a position where they need to change their retirement options.
Regardless of what the consumer needs and wants, they should always consult with an independent financial adviser. A specialist or expert can ensure that the consumer has all of the information needed to make the best and most unique decision for their particular situation.