My money lessons: Funding retirement travel plans with a fixed-term annuity

9 August 2019

After Tony Rowden and his wife, Beverly, retired they decided they wanted to travel round the world. Here, Tony explains how they are funding their travel plans out of their pension pots with a fixed-term annuity

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Funding retirement travel plans with a fixed-term annuity

After working hard all our lives, my wife and I both took early retirement on the same day last year.

It was a dream come true and we felt we had saved enough in our pension funds to give us a decent income each year as well as having enough left over to fund our travel plans.

My wife and I are absolutely loving retirement so far and it is great to find out what freedom really means.

It is very important to plan for the future and we have both been fortunate enough to have had decent final salary pension schemes.

Because we retired early we realised that we needed a little bit more income to fulfil our dream of travelling the world. However, we were not too keen on anything that was risky as we both wanted a guaranteed income.

We have always been cautious, but never huge savers. We made a bit of money after we cashed our endowments, but we realised we needed more to fall back on.

After sitting down and planning our finances we decided to transfer some money out of our pension pots to help boost our income.

We did not fancy taking drawdown and investing it as we just didn’t think the risk was worth it for the returns.

A financial adviser told us that our final salary schemes could not be beaten, so once we activated them we decided to look for an annuity.

We looked at a range of annuities, but to be honest they did not seem to be very good value.

To begin with we went to the other pension providers and asked them about the best offers on their annuities and if there were any special schemes we could look at that would give us a higher guarantee.

However, none of the providers had anything that met our criteria. Fortunately, we managed to find a broker online who came up with some very sound options. Because we retired early we wanted a little more guaranteed income, so are considering the Cash-Out Retirement Plan from Legal & General.

It’s similar to a fixed annuity, where you get a defined sum each year and you decide how many years you want that spread over until your pot is used up.

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Tony and Beverly Rowden are considering an annuity.

We aren’t really standard annuity customers and want something a little bit different.

We started to get paid from our final salary schemes in April 2018, and to be on the safe side we were looking for something to bridge a gap between getting our state pensions in 2021 and 2024.

Once we start getting our state pensions we will be in quite a strong position, comparatively.

Our combined pensions are worth around £800,000. We decided to transfer £140,000 out from this, taking 25% tax free, which leaves £105,000 for the annuity. This should give us an income of around £12,000 a year.

We basically feel that we are heading into a bit of a turbulent time economically, which could see returns falling on pension funds.

The stock market has been a bit up-and-down and could fluctuate further in the coming years, so we wanted something that was absolutely guaranteed. Brexit is another factor that could affect investments and pension schemes.

The annuity will help future-proof us from any downturns in the economy as we know exactly how much income we will be getting. A rise in the rate of inflation could slightly change how much we get back, but we expect the plan to have a lifespan of 10 years.

One of the biggest advantages is that if I die early the whole fund transfers to my wife without any loss.

The plan is to go on one big holiday a year, doing the rest of North America and a cruise. Australia and New Zealand are also on our bucket list. We’re not worried about staying anywhere extravagant, so we could even end up backpacking. We can’t wait!

As told to Stephen Little.

Do you have a lesson you’ve learnt about money you’d like to share? Please email editor@moneywise.co.uk

First published on 8 August 2019

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