MONEY
ANNUITIES
GOLD BLEND
Although retirees no longer have to buy an annuity, creating a portfolio with the right
blend of capital protection and income-generating characteristics presents its own
problems, writes Cherry Reynard
A
nnuities may be yesterday’s
story in the brave new world
of retirement planning,
but they do retain a number of
compelling features: notably, they
offer an attractive, guaranteed
income for life, even if retirees have
to give away all their cash to realise
it. The new environment brings
the seductive possibility of holding
pension assets in investments that
offer a consistent income with some
capital left at the end. But how can
investors achieve this?
Anna Sofat, founder and
managing director of Addidi Wealth,
says retirees need to be realistic:
“Investors must decide whether they
are happy for the capital to run out
in their lifetime or whether they
want to leave something behind.
Few people are happy to let it run
out – it will affect the level of risk
that someone can take.”
She says a good rule of thumb
is that if an investor is seeking an
income rate around the level of a
flat annuity (currently 5 to 5.5 per
cent), they should expect some
erosion of their capital pot. She
believes a more realistic figure
is 4 per cent a year. At this level,
retirees may experience some
fluctuation in their capital, but it
should be more or less preserved
over time.
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