Crystal Balls – Yours or Mine

Isn’t it annoying we can’t see into the future. It would certainly make many decisions in life much simpler. Decisions like taking an annuity at retirement.  I have talked about different annuity levels before.

So you have saved for donkeys years into several pension plans and now you just want your money back. Not so fast, first you need to read a 32 page retirement pack and comprehensively predict the future.  Because you can’t just have it all back in one go.

  • How long do you expect to live?
  • At what level will inflation run at from here on?
  • Will your health endure or will it deteriorate?
  • If you are married, who is likely to die first and will you even remain married?
  • If you are not married, could marriage happen in the future?

You see, I bet you don’t have the answers to any of those questions, so how are you going to decide on the type of annuity to buy?

The alternative to having the answers before you decide, is to defer the decision for now.  That probably isn’t going to be possible because you may need an income now and you probably would like to access your tax-free cash now, to enjoy it whilst you still can.  So what is the alternative?  You have probably heard of it, it’s called pension drawdown.

Pension drawdown involves leaving your pension fund invested, but drawing an income and/or taking your tax-free cash now.  So this is where my crystal ball comes into play.  I need to assess whether this is your best option.  It boils down to whether my investment expertise and experience will allow you to take a larger income over time or not. How would I know that?

The advantage I have is that I know your death benefits should be better by taking the drawdown route as at least something will be left after you have gone.  So when the final adding up is done you and your family should do better overall with drawdown.  But if you are like me, enjoying a good level of income for as long as possible is probably what interests you the most right now.

So to cut to the chase;

  • Your crystal ball – to tell you when you and your wife are going to die, whether your marriage is going to survive,  whether your health is going to deteriorate and whether inflation is going to run away with you.
  • My crystal ball – what investment return can I get for you so you can continue to defer all the above decisions for as long as possible.

For a Cautious Investor it’s an impossible call.

For a Moderate Investor drawdown looks increasingly attractive.

For an Aggressive Investor it’s a much easier decision to make.

It’s going to boil down to your attitude to investment risk and what other sources of income and assets you can rely upon throughout retirement.  It’s a big decision and it justifies a few hours of your life.