If you’re thinking about how to make your money last through retirement, you’re not alone.
With the world feeling more unpredictable than ever – politically, economically, and socially – it’s completely natural to want a bit more certainty when it comes to your finances. That’s where annuities come in.
Think of an annuity as a way to turn your pension pot into a regular income for life. You hand over a lump sum, and in return, you get a guaranteed income – often until the day you die. Some annuities can even continue paying your partner after you’re gone, or offer a lump sum if you pass away within a certain number of years.
You can also choose an annuity that rises with inflation, helping your income keep pace with the cost of living. But like any financial product, annuities aren’t perfect. They’re usually inflexible – once you’ve bought one, you can’t change your mind. And the income is taxable, so it’s important to get advice to make sure it fits your overall retirement plan.
Let’s face it – retirement should be about enjoying life, not worrying about whether your money will last. Annuities give you peace of mind by providing a steady, predictable income. Unlike investments that can go up and down, annuities offer stability. That’s especially important when you’re no longer earning a salary and need to cover everyday expenses.
You’re right to be. Inflation eats away at your spending power over time. The good news? Many annuities offer inflation protection, meaning your income can increase each year to help you keep up with rising prices. It might mean a lower starting income, but it can pay off in the long run.
If you’re in a couple, you might assume your partner will automatically get your pension income if something happens to you.
Unfortunately, that’s not always the case. 85% of annuities are bought on a single-life basis. That means the income stops when the policyholder dies. Choosing a joint-life annuity can help protect your partner, so it’s worth exploring your options.
You might have heard of drawdown plans, where you keep your pension invested and withdraw money as needed. They offer flexibility, but they also come with risks – like market volatility and the chance of outliving your savings (known as longevity risk).
Annuities eliminate that risk by paying you for life, no matter how long you live. Of course, investments can offer growth potential, so your financial adviser may recommend a mix of both – using annuities to cover essential expenses and drawdown for more flexible spending.
The Financial Conduct Authority recommends making sure your basic costs are covered by secure income sources like the State Pension, defined benefit pensions, or annuities. That way, you can afford to take more calculated risks with the rest of your pension pot.
A strong financial foundation can make all the difference in retirement.
Annuities can be a key part of that, offering guaranteed income, inflation protection, and support for your loved ones. And perhaps most importantly, they give you the confidence to enjoy your retirement without constantly worrying about money.
If you’re planning for retirement, don’t overlook the value of annuities. They’re not just about numbers – they’re about peace of mind. By including them in your financial strategy, you could create a more resilient, secure future for yourself and your family.
This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth. The information contained in this blog post is based on 2plan wealth management Ltd’s current understanding of tax laws as at April 2025. These laws are subject to change at any time and 2plan wealth management Ltd cannot be held responsible for any decisions made as a result of this newsletter. Tax advice is not regulated by the Financial Conduct Authority
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