Retire: Guaranteed annuities

Carina Jooste Latest, Retire

If 2020 taught us anything, it’s that we just need something to have our backs when things fall apart: An emergency fund when income dries up or medical insurance when the unthinkable happens. When uncertainty is rife, insurance products can cushion the fall. 

In terms of retirement products, guaranteed annuities can provide much-needed assurance. As an insurance-type product, a guaranteed annuity insures against the risk of outliving your retirement savings and poor investment returns when the markets go south. You are assured of an income for the rest of your life.

Guaranteed annuities provide security – at a cost. The more security you require, the less income you’ll receive every month. Let’s look at some factors that will negatively impact your monthly annuity income:

  • Age: Younger retirees will receive a lower monthly income as they’re likely to live longer than someone who retires at the age of 70.  
  • Gender: The gender pay gap will haunt us into retirement. Women have a higher life expectancy than their male counterparts, and for this reason, will also receive a lower monthly pension. 
  • Additional securities: A spousal benefit linked to a guaranteed annuity will ensure that your spouse will continue to receive an income when you pass away, as guaranteed annuities cease to exist when the policyholder passes away. 

In it for the long run 

While we’re on the topic of assurance and guaranteed money, it’s important to keep in mind when purchasing a guaranteed annuity from a life assurance company, you are placing a sizeable chunk of your eggs into one basket – for at least 20 – 30 years. 

It’s not all or nothing

An option that might calm the investment nerves is a with-profit annuity. Also described as a hybrid annuity, with-profit annuities are part guaranteed and part investment-linked. Policyholders receive a guaranteed monthly income and future increases linked to investment returns. So when you purchase a with-profit annuity, your money is invested in low-risk investments to secure the guaranteed income, and high-risk investments to provide better growth and profit. 

Read more:

Living vs guaranteed annuities

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.

Retire blog

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