Despite the increasing size of super balances, research shows that money worries remain the leading cause of anxiety for older Australians1. In fact, most retirees rate having income for life (or financial certainty) as their most important financial priority. That’s because lack of financial certainty undermines financial confidence and, ultimately, the quality of life in retirement.
So how do we obtain financial certainty in retirement?
Until now, retirement products (such as account-based pensions) with their depleting balances and exposure to market volatility don’t provide that much-desired certainty. On the other hand, income products (such as annuities) provide certainty but have come with tradeoffs.
There’s an emergence of innovative retirement income products that are solving the problems associated with traditional annuities. Despite this, research shows that take up of annuities is low (with only around 6%2 of pension-phase accounts invested in annuities) – usually because they are widely misunderstood.
Here, we bust some myths regarding annuities and explain how the next generation of annuities is transforming life in retirement.
My money is locked away and difficult to access.
One of the biggest myths about annuities is that money is locked away. And while in the past, investors had limited access to their money, new-era retirement income products are transforming retirement by providing a lifetime income with the ability to access capital whenever required to meet unforeseen expenses.
My beneficiaries won’t receive anything if I die early.
This may have been the case with annuities in the past, but new-era retirement income products provide peace of mind by paying a death benefit to beneficiaries.
In addition, these innovative annuities may even continue to pay the investor’s lifetime income to their spouse for the remainder of their life.
Annuities have limited growth potential.
With ever-increasing years spent in retirement, the ability to grow savings is crucial. Innovative, new-era lifetime income products combine the potential for growth with a protection mechanism to shield investors from market downturns.
Annuities lack flexibility.
When you think about traditional annuities, ‘flexibility’ is probably not the first word that comes to mind. Until now, they have been perceived as too rigid and light on choice.
However, the new era of annuities are designed around flexibility:
- flexibility to start your annuity when ready
- flexibility to make withdrawals whenever required
- flexibility to choose how to invest your annuity and the ability to adjust your strategy along the way
- flexibility to receive either rising payments to keep pace with inflation, or fixed payments for life.
These new-era annuity products provide income certainty, flexibility and the ability to access capital whenever needed.
They can pay a death benefit to beneficiaries, are designed to work alongside account-based pensions and even optimise eligibility for the Age Pension.
These innovative products can help retirees look forward with confidence and truly transform retirement for Australians.
1 National Seniors Australia: 'The Cost of Living and Older Australians' Financial Wellbeing' September 2023
2 Australian Government Retirement Income Review July 2020