What Is An Annuity And Why Should I Care?

Hi Everyone,

In this blog, I just wanted to give a brief introduction to annuities and provide a couple examples how they work. To see the examples, please click below to open the PDF.

What is an annuity?

An annuity is an investment that pays you a guaranteed income for a period of time, which can be fixed or the rest of your life. Unlike an account based pension, annuities give you certainty. You know how much income you’ll get and how long it will last.

What are the benefits?

• You are paid a guaranteed income regardless of how markets perform. This provides certainty of retirement income – like a defined benefit pension
• Annuities purchased with superannuation money are tax free from age 60
• Only the income component (if any) of an annuity purchased with non-super money is taxable
• You don’t pay tax on investment earnings
• Income payments can be set to increase annually at the time the annuity is purchased
• They can help to improve your age pension due to Centrelink friendly treatment
• Annuities are flexible in that you can withdrawal your money (with some exceptions), you can have indexed income or non-indexed, choice around death benefits and estate planning

What are the downsides?

• You cannot take out partial withdrawals – It’s all or nothing. However, this can be overcome by setting up multiple annuities, which does not cost extra
• You cannot choose how your money is invested
• Over the long term, an annuity may pay less than a market-linked investment
• There is no opportunity for capital growth

click here to open the case study PDF.

As always, feel free to get in touch if you have any questions.

Cheers,

Nick