Annuity

[Martinbjulieb]

Does anyone know can you buy an annuity with your Super funds before the age of 60? 
TIA. 

[Marisawright]

I can’t see how they make financial sense 

[Martinbjulieb]

18 minutes ago, Marisawright said:

I can’t see how they make financial sense 

Why not? We want to access our super earlier than the Australian government allows (our money so not quite sure why you have wait until they say!) so this may be a way of doing it. Obviously I am going to take financial advice I just wondered if it was possible first. 

[Marisawright]

Just now, Martinbjulieb said:

Why not? We want to access our super earlier than the Australian government allows (our money so not quite sure why you have wait until they say!) so this may be a way of doing it. Obviously I am going to take financial advice I just wondered if it was possible first. 

Basically because so many people are stupid and if you let them access the money early, they’ll squander it. 

 

[Martinbjulieb]

6 minutes ago, Marisawright said:

Basically because so many people are stupid and if you let them access the money early, they’ll squander it. 

 

Spoils it for the sensible ones then!!  I don’t consider 56 to be too early to semi retire. 

[Marisawright]

4 minutes ago, Martinbjulieb said:

Spoils it for the sensible ones then

You are absolutely right

[Wanderer Returns]

1 hour ago, Martinbjulieb said:

Does anyone know can you buy an annuity with your Super funds before the age of 60? 
TIA. 

Unless you can guarantee you're going to live to 100, buying an annuity is pretty much financial suicide. Get financial advice and just see how the numbers compare.

[Marisawright]

@Martinbjulieb, I suggest you talk to an annuity company and see what they'll offer you first.  I think you'll find it's a lot less than you think, at your age.

To give you an example.  I looked at this when I was 65.  At that point, I could've bought an annuity for $400,000.  That would get me $20,000 a year guaranteed for the rest of my life.  But wait a minute - if I invested that $400,000 in an ordinary savings account, I could withdraw $20,000 and it would last me 20 years.  At 65, what are the chances I'll eve live for those 20 years?

The annuity companies are in it to make money. They look at the age you are now, and assume you're going to live till you're 90.  Then they work out how much they can afford to pay out each year based on that.  If you live till you're 100, you win because they have to go on paying. But if you die in your 70s o 80s, they win, because you're never even going to get your money back, let alone make a profit.

[Martinbjulieb]

40 minutes ago, Wanderer Returns said:

Unless you can guarantee you're going to live to 100, buying an annuity is pretty much financial suicide. Get financial advice and just see how the numbers compare.

Is an income stream or allocated pension different? 

[Marisawright]

30 minutes ago, Martinbjulieb said:

Is an income stream or allocated pension different? 

Yes, that's a totally different thing. 

With an annuity, you pay an annuity company a lump sum of money (which you can't get back) and in return, they agree to pay you a fixed pension every year for as long as you live.  Of course, if you die early, they win - they might only have paid you five or ten years' worth of pension even though you gave them enough to pay for twenty years, but your family won't see a penny of that lump sum.

With an income stream, you just tell the super fund how much you'd like to take as a pension each year and they pay it to you.  You can change it up or down as often as you like, but the money is coming out of your super pot.  When your super pot runs out, that's it, your pension stops.  So it's vital to work out how much you can afford to take as a pension each year, if you want your money to last as long as you do.

An allocated pension was the old name for an income stream AFAIK. 

Edited May 18, 2021 by Marisawright

[Marisawright]

I'll give you a tip, based on my personal experience.  Don 't take your supr now, and think twice about retiring now unless you re absolutely minted.

My husband and I both stopped work at 55, due to contracts finishing/retrenchments etc.   We didn't fret about it and decided to retire early because we reckoned we were comfortably off at the time.   We were looking forward to holidays in Europe and all sorts.  Twelve years on and I can hardly believe how differently we see it now.  The superannuation/savings that seemed so amazingly healthy then, look much more shaky now. It's amazing how quickly money goes out the door when there's no money coming in!    We wish now that we'd kept on working for another 5 years or so, it would've made all the difference.

Here's an exercise to do:  sit down and work out how much it costs you to live for a year. Easy to do:  just look at your net salary (after super and tax) and how much of that you manage to save each year.  Now you know how much your current lifestyle costs every year.  Think about what savings you'd make if you weren't working (suits etc).  Then think about the extras you'll spend (more holidays).  Make the adjustments.  The result is how much money you'll need each year in retirement, if you want to go on enjoying the same things in life as you do now. 

Ask yourself, if you withdrew that amount from your super every year, how long would your super last?  Remember, once it runs out, it runs out, and all you'll have left is the govt pension.

[Martinbjulieb]

18 minutes ago, Marisawright said:

Yes, that's a totally different thing. 

With an annuity, you pay an annuity company a lump sum of money (which you can't get back) and in return, they agree to pay you a fixed pension every year for as long as you live.  Of course, if you die early, they win - they might only have paid you five or ten years' worth of pension even though you gave them enough to pay for twenty years, but your family won't see a penny of that lump sum.

With an income stream, you just tell the super fund how much you'd like to take as a pension each year and they pay it to you.  You can change it up or down as often as you like, but the money is coming out of your super pot.  When your super pot runs out, that's it, your pension stops.  So it's vital to work out how much you can afford to take as a pension each year, if you want your money to last as long as you do.

An allocated pension was the old name for an income stream AFAIK. 

Thank you @Marisawright  I have a financial planning meeting soon so I will be discussing it then. Initial thoughts would be to only convert one of our funds and leave the other one so we could access lump sums if required. 

[Martinbjulieb]

1 hour ago, Marisawright said:

I'll give you a tip, based on my personal experience.  Don 't take your supr now, and think twice about retiring now unless you re absolutely minted.

My husband and I both stopped work at 55, due to contracts finishing/retrenchments etc.   We didn't fret about it and decided to retire early because we reckoned we were comfortably off at the time.   We were looking forward to holidays in Europe and all sorts.  Twelve years on and I can hardly believe how differently we see it now.  The superannuation/savings that seemed so amazingly healthy then, look much more shaky now. It's amazing how quickly money goes out the door when there's no money coming in!    We wish now that we'd kept on working for another 5 years or so, it would've made all the difference.

Here's an exercise to do:  sit down and work out how much it costs you to live for a year. Easy to do:  just look at your net salary (after super and tax) and how much of that you manage to save each year.  Now you know how much your current lifestyle costs every year.  Think about what savings you'd make if you weren't working (suits etc).  Then think about the extras you'll spend (more holidays).  Make the adjustments.  The result is how much money you'll need each year in retirement, if you want to go on enjoying the same things in life as you do now. 

Ask yourself, if you withdrew that amount from your super every year, how long would your super last?  Remember, once it runs out, it runs out, and all you'll have left is the govt pension.

I understand what you are saying. I work 3 days and the idea was that my husband would drop to 4 days for a year or two  and then 3 and we would use our super to top up our salary. I can see that an annuity is not the way though! I have just had my appointment with a company who specialise in Australia/U.K. pensions and now we need to discuss this with our advisor in Perth as they know our situation so will hopefully be able to advise on the Australian side of things whereas they don’t know about the U.K. side! 

[Parley]

13 hours ago, Martinbjulieb said:

Why not? We want to access our super earlier than the Australian government allows (our money so not quite sure why you have wait until they say!) so this may be a way of doing it. Obviously I am going to take financial advice I just wondered if it was possible first. 

It is your money but you have been given substantial tax concessions on the proviso that it is money save for retirement and not accessible until your preservation age.

I think it is good to have savings outside of Super which can be accessed in cases like yours.

Is your home paid off ? If so I would try to just manage with available money outside of super until you can retire.

 

[Parley]

11 hours ago, Marisawright said:

I'll give you a tip, based on my personal experience.  Don 't take your supr now, and think twice about retiring now unless you re absolutely minted.

My husband and I both stopped work at 55, due to contracts finishing/retrenchments etc.   We didn't fret about it and decided to retire early because we reckoned we were comfortably off at the time.   We were looking forward to holidays in Europe and all sorts.  Twelve years on and I can hardly believe how differently we see it now.  The superannuation/savings that seemed so amazingly healthy then, look much more shaky now. It's amazing how quickly money goes out the door when there's no money coming in!    We wish now that we'd kept on working for another 5 years or so, it would've made all the difference.

Here's an exercise to do:  sit down and work out how much it costs you to live for a year. Easy to do:  just look at your net salary (after super and tax) and how much of that you manage to save each year.  Now you know how much your current lifestyle costs every year.  Think about what savings you'd make if you weren't working (suits etc).  Then think about the extras you'll spend (more holidays).  Make the adjustments.  The result is how much money you'll need each year in retirement, if you want to go on enjoying the same things in life as you do now. 

Ask yourself, if you withdrew that amount from your super every year, how long would your super last?  Remember, once it runs out, it runs out, and all you'll have left is the govt pension.

Much better to live to your means.

The 4% rule says only spend 4% of you Super balance every year. If your Super is invested in growth assets your money should never run out.

It is not a good idea to keep spending like you did when you were earning $100K a year or more when you are retired.

The Age pension is also adequate for a person who owns their own home. Something like $880 a fortnight is pretty generous for a pension.

Edited May 18, 2021 by Parley

[Marisawright]

4 hours ago, Parley said:

Much better to live to your means........ is not a good idea to keep spending like you did when you were earning ....

That's true, but most people don't think about it like that.  They look forward to a retirement where they can enjoy all the things they do now, plus have more free time to do even more.

That's why I suggested doing that exercise.  It lets you see what that lifestyle would cost.  If you don't have enough super to cover it, then it makes you stop and think:  either you'll have to cut back your current lifestyle (and if so, what will you give up), OR you'd better keep working for a few more years to build up your super/savings. 

[newjez]

49 minutes ago, Marisawright said:

That's true, but most people don't think about it like that.  They look forward to a retirement where they can enjoy all the things they do now, plus have more free time to do even more.

That's why I suggested doing that exercise.  It lets you see what that lifestyle would cost.  If you don't have enough super to cover it, then it makes you stop and think:  either you'll have to cut back your current lifestyle (and if so, what will you give up), OR you'd better keep working for a few more years to build up your super/savings. 

My wife came up with a budget for our retirement. It includes lots of expensive things, like three big holidays a year etc. I cut all of that out. Apart from Florida I've never enjoyed a holiday. The states are out now because the insurance is so high. Asia too is pretty expensive. If you have had cancer they really jack up the price. Europe is probably out of the question too post brexit. I've been everywhere I want to go anyway. No, I'm a pretty cheap date these days. I just need walking clothes, a sub £500 bike every five years and a yearly pair of running shoes, a few bags of compost and I'm happy.

Edited May 19, 2021 by newjez

[Parley]

On 19/05/2021 at 14:50, newjez said:

My wife came up with a budget for our retirement. It includes lots of expensive things, like three big holidays a year etc. I cut all of that out. Apart from Florida I've never enjoyed a holiday. The states are out now because the insurance is so high. Asia too is pretty expensive. If you have had cancer they really jack up the price. Europe is probably out of the question too post brexit. I've been everywhere I want to go anyway. No, I'm a pretty cheap date these days. I just need walking clothes, a sub £500 bike every five years and a yearly pair of running shoes, a few bags of compost and I'm happy.

Its not all about you though is it ? Your wife might not be happy having your holidays in Bournemouth every year.

Edited May 20, 2021 by Parley

[Marisawright]

On 19/05/2021 at 14:50, newjez said:

My wife came up with a budget for our retirement. It includes lots of expensive things, like three big holidays a year etc. I cut all of that out. Apart from Florida I've never enjoyed a holiday. The states are out now because the insurance is so high. Asia too is pretty expensive. If you have had cancer they really jack up the price. Europe is probably out of the question too post brexit. I've been everywhere I want to go anyway. No, I'm a pretty cheap date these days. I just need walking clothes, a sub £500 bike every five years and a yearly pair of running shoes, a few bags of compost and I'm happy.

Sounds like you'll be planning a solitary retirement then....

[Marisawright]

On 18/05/2021 at 23:33, Martinbjulieb said:

I understand what you are saying. I work 3 days and the idea was that my husband would drop to 4 days for a year or two  and then 3 and we would use our super to top up our salary. I can see that an annuity is not the way though! I have just had my appointment with a company who specialise in Australia/U.K. pensions and now we need to discuss this with our advisor in Perth as they know our situation so will hopefully be able to advise on the Australian side of things whereas they don’t know about the U.K. side! 

@Martinbjulieb, my only concern would be that if you need two advisers, something is wrong somewhere.  If you've got a genuinely cross-border adviser (and not one of those jumped-up "wealth management" firms based in Dubai or the like), that you have confidence in, then I'd stick with what they say, OR find another genuine cross-border advisor if you want a second opinion.  It sounds like a recipe for confusion to have an Australia-only advisor as well, who's only looking at half the equation.

[newjez]

6 hours ago, Marisawright said:

Sounds like you'll be planning a solitary retirement then....

Not really. My wife doesn't like holidays either. But she does like telling people about the holidays we've been on, although the way she describes them I don't recognize them.

I wouldn't mind the odd city break just to get away. Or a quick trip over to France on the tunnel. But most holidays I've been on you come back more stressed than when you left. I would go skiing. But my wife doesn't ski. 

 

Edited May 20, 2021 by newjez

[newjez]

6 hours ago, Parley said:

Its not all about you though is it ? Your wife might not be happy having your holidays in Bournemouth every year.

She hates flying. She gets sea sick. She would be more than happy with Bournemouth. But the UK weather is so unreliable.

[Ken]

On 18/05/2021 at 19:39, Martinbjulieb said:

Does anyone know can you buy an annuity with your Super funds before the age of 60? 
TIA. 

You can't use your Super to buy an annuity until you reach your preservation age.

For anyone born after 1 July 1964 that preservation age is 60.

However even if you have reached preservation age, if you haven't permanently retired you can only access part of your super via a transition to retirement pension and buying an annuity is not an option by that route.

If you haven't retired you would need to be 65 before you would be able to buy an annuity.

As others have mentioned an annuity is an expensive option for your pension income unless you know that you are going to live a lot longer than the insurers believe you will. Bearing in mind the insurers will conduct a medical, insist on access to your medical history and have huge amounts of data on life expectancy in someone with your health and lifestyle I really wouldn't recommend betting against them.

[Parley]

7 hours ago, Ken said:

You can't use your Super to buy an annuity until you reach your preservation age.

For anyone born after 1 July 1964 that preservation age is 60.

However even if you have reached preservation age, if you haven't permanently retired you can only access part of your super via a transition to retirement pension and buying an annuity is not an option by that route.

If you haven't retired you would need to be 65 before you would be able to buy an annuity.

As others have mentioned an annuity is an expensive option for your pension income unless you know that you are going to live a lot longer than the insurers believe you will. Bearing in mind the insurers will conduct a medical, insist on access to your medical history and have huge amounts of data on life expectancy in someone with your health and lifestyle I really wouldn't recommend betting against them.

There is a quirk though.

You are right that to access your super, you need to have reached preservation age and finish at your workplace and declare yourself retired.

However you can subsequently "change your mind" and look for another job. So as long as you have finished up somewhere for whatever reason that can work. Getting your super doesn't mean you can never work again.

It does have to be your intention at the time and you declare retirement, but you can change it later.

[Martinbjulieb]

On 20/05/2021 at 08:55, Marisawright said:

@Martinbjulieb, my only concern would be that if you need two advisers, something is wrong somewhere.  If you've got a genuinely cross-border adviser (and not one of those jumped-up "wealth management" firms based in Dubai or the like), that you have confidence in, then I'd stick with what they say, OR find another genuine cross-border advisor if you want a second opinion.  It sounds like a recipe for confusion to have an Australia-only advisor as well, who's only looking at half the equation.

What I meant was that our advisor in Perth fully knows the ins and outs of our super accounts as we have been with them since 2009 and they look after our investments still. BUT as they are Australian they don’t fully understand the UK tax implications so they recommended a firm that specialise in both countries so we could get the full picture. However I was only getting some free advice from them so spoke in very general terms to get some advice on tax etc.