Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.
To guarantee income upon retirement, it is important to join a Retirement Benefits Scheme while still in your working years and start your contribution. On retirement, one should aim to have a monthly income equal to 75% of your last monthly salary. There are 2 ways to achieve this income: through an Income Drawdown Fund or through purchasing an Annuity.
An income drawdown is an option that allows members of Retirement Benefits Schemes to access their accumulated retirement benefits (the value of your pension at retirement) as a regular income, through reinvesting their benefits in an Income Drawdown Fund registered by the Retirement Benefits Authority (RBA), from which periodic payments are made towards their monthly upkeep and any unforeseen expenses.
An annuity is a contract between an insurance company and an individual where in return for a lump sum of money, in this case the value of your pension at retirement, the insurance company or approved issuer will give you a periodic income with the choice of monthly, quarterly, half-yearly or yearly payments. At retirement, a member chooses an insurance provider to purchase an annuity. Annuities are strictly provided by insurance companies. Options available include but are not limited to;
The amount of income payment you will receive will depend on several factors including: (i) the amount paid to purchase the annuity, (ii) age at the time of purchase, and (iii) the benefits options chosen. For annuities, the more conditions you have, such as including a guaranteed period, adding a spouse to the annuity, etc. the lower the monthly payments that you will receive.
Income Drawdown Funds are widely considered more flexible than Annuities. With an Income Drawdown Fund, you choose how much you want to withdraw from your fund and the frequency. You can also change the amount of drawdown at a frequency that will be agreed
on with your provider. An annuity provides certainty in retirem ent, but lacks the flexibility that income drawdown provides.
Some factors that you can consider when making the decision between an income drawdown fund and an annuity include:
You have worked hard to get to retirement and can finally enjoy your golden years! The critical decision you have to make is how to invest your accumulated retirement benefits to ensure that they provide an income that will afford you a comfortable retirement. So what options do you have at retirement to invest your benefits?
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