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The Risks and Benefits of Living Annuity

12 Jan 2023

A living annuity is a retirement investment product that allows an individual to convert their retirement savings into an income stream. In this article, we will cover the risks and benefits of living annuity. First, let’s start with the benefits. The benefits of a living annuity include:

  1. Control over income: The individual can choose how much income they want to receive from the annuity, which can be adjusted as needed.
  2. Flexibility: The individual can make changes to their investment portfolio, which can affect the income they receive.
  3. Potential for investment growth: The investments in the annuity have the potential to grow over time, which can result in a higher income in the future.
  4. Tax benefits: Depending on the country and the specific product, there may be tax benefits associated with living annuities.
  5. Inheritance: Depending on the country, the remaining balance of the annuity can be passed on to beneficiaries upon the death of the annuitant, providing an inheritance to loved ones.

It’s worth remembering that these benefits come along with the risks that were mentioned in the previous answer, so it is important to consider these carefully before making any decisions.

However, living annuities also have some risks. One risk is that the individual is responsible for managing their own investments, which can be difficult for those who are not experienced investors. Additionally, if the investments in the annuity do not perform well, the individual’s income may not be sufficient to cover their expenses. Furthermore, living annuities do not provide any guarantee of income, so if the individual outlives their savings, they will have no income.

Another risk is that the annuity income is not indexed to inflation, so the purchasing power of the income may decline over time.

Now that you understand the primary risks and benefits of living annuity, you can make more informed decisions about your finances.