Annuities – Lifetime & Aged Care
Retirement is a beautiful part of life, I can see this when watching lifestyle of my own clients, lots of enjoyment, ability to devote time to things that matter for them, time spent with families, traveling different parts of Australia and overseas, some are going back to things they enjoyed doing when young, or hobbies and pastimes that they’ve never had time to pursue when raising the family.
But now, during retirement, this is the perfect time to pick up where you left off, or fulfill your life dreams. So what would it be for you? What are those things that you really, really want to do, but you’ve never had enough time to follow your passion?
For me, it is my work, I love what I do, but there are other things that I wish I had more time for, such as travel, hiking, photography, and of course more time with the family, that now is scattered all over the world.
But all this sounds magnificent and very, very exciting, as long as your income can support your plans. And the more secure and reliable your income is, the more probable your plans can be.
So how do you set up your income to have this kind of income security and predictability?
It is done by organising your assets as a mixture of different forms of income streams. Not only this is a very positive structure for long-term income, but also can be very beneficial for your assets and the value of your estate.
I’ve already explained the most popular form of an income stream – allocate pensions, also called account-based pensions, so watch the video: “Account Based Pensions – good & bad explained“. And just recently I’ve prepared another video: “Annuities & Your Retirement – Why?“ which is part 1 of our exploration into the annuity world. And today we will continue our discussion about annuities, and specifically about Lifetime Annuities and Aged Care annuities.
Building assets, taking investments risks happens during your working years.
Once retired, security of income for life should be your priority.
Then you don’t have to worry about what the market is doing, or what life throws at you.
Katherine Isbrandt
Let’s continue talking about those annuities and how they can help you in setting up an income stream for your retirement.
Lifetime Annuities
This is a special type of an annuity, that these days is pretty complex and requires proper planning as being part of your overall retirement income stream portfolio.
But the simplest way of explaining an annuity is that this is kind of a trade-off you make with a life office: you invest a lumpsum of savings, either as your private money or superannuation money, so many from your super fund.In return the life office will provide you with usually a predetermined and pre-calculated income for life. Kind of buying you own wages for the rest of your life.
So before you apply, you will actually receive the full quote as to the level of income to be received year after year, what is the death benefit and how long it is payable for, as well as what is the withdrawal value at any point in time.
All those benefits have been calculated for you by an actuary and once accepted by you, are guaranteed for life as listed in the quote provided to you.
As I said before, annuities have become very sophisticated products and can assist investors with achieving different outcomes for different reasons and in different situations, hence there are different product options for those Lifetime Annuities. I will go over them in my future video.
But generally, those are some of the benefits of Lifetime annuities:
- big benefit that you cannot receive from any other income source is – a regular, reliable and secure income for life, or even for the life of your spouse, if you choose so.
- payments can start immediately or at some future date, if you are using your superannuation savings
- you can choose to have your payments increased annually as per level of inflation
the death benefit can be paid to your estate or nominated beneficiaries – please keep in mind that there are strict regulations who can be a beneficiary of your superannuation assets. If unsure, check this video: “Who gets your super when you die“ - and another benefit is a potential increase of your Age Pension entitlement. And if you are one of thousands of retirees who lost Age Pension altogether due to changes of Centrelink’s Assets Test, lifetime annuity can possibly help you to access part Age Pension together with the HealthCare card.
Aged Care specific annuities
This is a very special type of an annuity, specifically designed for people who are receiving or are planning to be receiving government-subsidies of age care services.
So why would one commence such an annuity when entering Aged Care facility?
- Similar to Lifetime annuity – once set up, the person entering Age Care can feel secure and protected knowing that income from this annuity will be paid for life, allowing to assist to meet aged care fees and other living expenses, regardless of market behaviour.
- This type of annuity will provide the annuitant with the choice of the beneficiary upon death.
- Potential of reduction of Aged Care fees, but it can work for some and not for others, so full check up is necessary prior to any annuity commencement.
As I mentioned before, annuities have become a very sophisticated investment and income instruments.
My sincere recommendation is, just get advice before you commence any investing, as it is very easy to make a mistake that might not only provide you with the incorrect outcome, but at the same time, you could be stuck with the product that is actually not helping you achieving your retirement goals.
Another big recommendation is, once you receive an advice from a financial planner, ask for assistance with submitting this annuity to the Centrelink office.
It can be very frustrating to keep waiting and waiting for weeks for Centrelink reply and to see the outcome of the annuity, especially if you are expecting improvement of your Age Pension payments.
So ask financial planner to deal with Centrelink for you, even better before you agree to the service, make sure you find out if this type of service is provided.
If not, find a financial planner that does it and move on. Most certainly our practice if providing this as part of the service, so you always feel secure knowing that the Age Pension outcome will be exactly as calculated in the advice document for you.
So how do you feel about annuities now? Do you believe an annuity should be part of your income stream portfolio? Can it help you in achieving income security?
If you would like to learn more how to organise your retirement savings to your best benefit, feel free to contact me.
Retirement is a Journey NOT a Destination, so please be well prepared for the ride.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
