We all spend a lot of time thinking about how much we should be saving for retirement, and what the best strategy is for those investments. But we often don’t spend much time thinking about what the best strategy is for using this money after we have retired.
In this podcast, Hugh Hacking, head of structured investments and annuities at Momentum Corporate, helps us unpack all of the different products available to retirees, and has useful advice on how to choose between them.
When the time comes for you to retire, you will be able to take the funds in your company pension fund or retirement annuity, and by law, you will have to purchase an annuity with these funds. This annuity will give you an income hopefully for the rest of your life.
However, there are different types of annuity products in the market. The two main types are a “life annuity” and a “living annuity”. Drilling down further, a life annuity has different options, such as a level income, an income linked to inflation, or even a with-profit option.
It can all get quite confusing!
This conversation is a great opportunity for you to understand a little more about the various annuity options.
This podcast is not meant to replace getting proper, personalised financial advice once you near retirement. But it can give you the knowledge and tools to ask the right questions once you are ready to sit down with a financial adviser or financial planner to map out your retirement income options.
One of the points that we discuss in the interview – and this is an important one – is that things are changing for retired people right now.
Interest rates are starting to come down and that is also going to have an impact on the annuity income you will receive if you are retiring now. It will also impact many people in retirement who may have money in fixed deposits or bank accounts.
Financial planning is becoming even more important in an environment where interest rates are going down, so listen to this interview with Hugh and if you have any further questions, you are welcome to post them at the end of this post.
Key points covered in this podcast are:
- Overview of recent interest rate cuts and their impact on retirement planning
- Understanding life annuities vs. living annuities
- How bond rates affect annuity pricing
- The risks and benefits of living annuities
- Strategies for blending annuities for a sustainable income
- Importance of cost management in retirement planning
- Final thoughts on securing financial stability in retirement
THANX Maya – A great ‘start’ to the retiral income discussion – however you could hear the bias your guest had to life assured products – hence you should have a balanced panel covering the various aspects a retiree would need to consider to vacillate the decision making process (topic is broad and quite myopic dependent on respondent) ie what about accelerated annuities (what are they); why tontines are not more widely considered; product development/choice for retirees in SA is ‘very slow’ (why) eg vs ETFs/AMCs etc; Balanced funds(Reg28) have not delivered livable returns (especially post costs) for a decade in SA (retiree chances of success?) – building a bond ladder for retiral income; why did the industry move from DB to DC- putting the risk onto the pensioner/member who is broadly ill-equipped vs institutional expertise etc)
Thanks for the feedback. This was a basic understanding of the most common options available to retirees. It is true that we do not have the range of product options that you could get in the US for example. Partly that would be the limited size of our market given how few people retire with sizeable amounts. I remember the concept of tontines was used by Liberty about 10 years ago – it was not very successful for some reason. I agree the move from DB to DC was very negative for members as it transferred risk. Corporates did it to remove that risk from their balance sheet (ask General Electric about that) – but unions supported the move. People believed that they would be better at managing their own pensions and it also allowed them to cash out when changing jobs. A Bond ladder is a fairly sophisticated concept and probably beyond the scope of most retirees but an actively managed income fund could provide a similar concept. Given the very high interest rates now, buying into an annuity income would be a smart move. It is unlikely the rates will get much higher than that