As you approach retirement age, you will encounter many difficult financial situations that will affect your quality of life as you get older. Rather than exiting the workforce with a gold watch to commemorate your achievements, you will have the opportunity to take your investments out of your pension scheme and place them into an annuity. An annuity pays you a monthly stipend, and the available annuity types and rates vary, so it is in your best interest to shop around for the best annuity. Choose wisely, and your annuity will help provide you with the comfortable retirement that you deserve.Check If Your Pension Has a Guaranteed Annuity Rate
Before withdrawing any of your pension money, find out if your existing pension includes a guaranteed Annuity Rate. Typical of pension schemes from the 1970s-80s, the guaranteed annuity rate can be significantly higher than any annuity rate available on the open market. If your pension does have a guaranteed annuity rate, you can rest easy, as your work is already done. Do note that this rate may only apply if you retire at age 65, so if you have early retirement plans, take this open market option to determine which annuity will benefit you the most overall.
Disclose Any Health Conditions or Otherwise Poor Lifestyle Choices
When shopping for an annuity, the applications will ask you about your medical history, whether you are a smoker or drinker, and if you are clinically obese. While these are often negative factors when choosing other forms of insurance, they actually work in your favor when picking an annuity. They will often qualify you for an enhanced annuity – one where you receive a higher payment now, with the expectation that you will not live as long. Feel confident when choosing an enhanced annuity, as the higher payments will help improve your quality of life with these conditions.Choose a Qualified Financial Adviser to Help
If you are overwhelmed by the many types of annuities available, a financial adviser will guide you to the right choice. They will ask you about your life circumstances, such as if you have a partner who may outlive you, if you want your annuity to adjust for inflation, and if you are taking any direct payments out of your pension before applying the remainder to an annuity. They will give you personalized recommendations that are suited to your retirement financial goals. If you opt not to work with a financial adviser, remember that your pension provider and annuity brokers most often give you information, but cannot offer financial advice.
Combine Multiple Pensions into One Annuity
While many retirees are hesitant to put all of their money into one annuity, it can be the most profitable choice. Some annuities have purchase minimums, so you may need to combine your pension pots to get the best annuity rate. Otherwise, having multiple pensions transferring into multiple annuities can grow confusing, requiring a considerable amount of paperwork and future management. The simplicity of a single annuity can prevent financial confusion down the line.Give Yourself Plenty of Time
Your pension will send you some paperwork about six months before your retirement, but you may want to start early. You want plenty of time to compare annuity rates, and make sure you have all of the necessary documents available. If you are looking at an enhanced annuity, you may have to have a physical examination or provide medical records confirming your condition. The more time you give yourself, the less pressure you will feel when deciding which annuity is right for you.
There is no need to rush into choosing the best annuity for your retirement. Educate yourself about the different types of annuities available, and go over your options carefully. You will have the knowledge necessary to make an informed choice, that will allow you to enjoy your retirement years, rather than worrying about your financial situation. Shop for the right annuity, and allow your pension money to work for you.