{"id":1912,"date":"2023-11-08T10:58:46","date_gmt":"2023-11-08T10:58:46","guid":{"rendered":"https:\/\/www.hansfordbell.co.uk\/?p=1912"},"modified":"2023-11-13T11:01:36","modified_gmt":"2023-11-13T11:01:36","slug":"income-drawdown-vs-annuities-for-retirement","status":"publish","type":"post","link":"https:\/\/www.hansfordbell.co.uk\/income-drawdown-vs-annuities-for-retirement\/","title":{"rendered":"Income Drawdown vs Annuities for Retirement"},"content":{"rendered":"

Income Drawdown vs Annuities for Retirement<\/h1><\/div>
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Finally, you\u2019ve made the decision to retire. But you\u2019re faced with a decision \u2013 do you buy an annuity, or do you leave your pension intact and receive income from it through income drawdown?<\/h4><\/div>

The decision can be tough, but we\u2019re here to give you the facts to make things easier. In this article from the team here at Hansford Bell, we\u2019ll explain what annuity and income drawdown are, their differences, rates, and determine which is the best option for retirement.<\/p>\n

Get in touch<\/a> to discover the right retirement and finance options for you with advice from our experts.<\/p>\n<\/div><\/div><\/div>

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Differences between Annuity and Income Drawdown<\/h2>\n

So, the first thing to pin down is the definition of both annuity and income drawdown. This lets you see how each option works, making it easier to tell the difference between them and eventually making it easier to make your final decision.<\/p>\n

What is an Annuity?<\/h3>\n

An annuity<\/strong> is a service sold by an insurance company that pays income for an agreed upon amount of time \u2013 either for life, or a set number of years. Income from an annuity is taxed as earnings, but when you take out an annuity you can withdraw up to 25% of your pension pot tax-free.<\/p>\n

What is Income Drawdown?<\/h3>\n

Income drawdown<\/strong> is a method of obtaining income from your pension once you retire, without using it all to buy an annuity. This keeps your money invested in the pension fund, allowing it to continue to grow. The value of your pension can increase over time through this method but be careful as gains are not guaranteed and the value can always go down.<\/p>\n

What\u2019s the Difference?<\/h3>\n

The main difference between income drawdown and annuity is the variability in your rate of income.<\/p>\n

An annuity is typically an agreement that gives you a fixed rate of income over an amount of time that you\u2019ve specified, while the rate of income from income drawdown is variable depending on how well your investments do.<\/p>\n

An annuity also gives you up to a quarter of your funds in untaxed cash when you purchase it, making it a way to get a decent amount of your pension pot right away.<\/p>\n

Whichever decision you choose, make sure to consider the current annuity rates and the expected changes in your investments. This will put you in the best position to ensure a relaxing retirement with a comfortable financial situation.<\/p>\n

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How Much Can I Receive from My Annuity?<\/h2>\n

The exact rate for income from an annuity depends on the age at which you purchase the annuity, how much money is in your pension pot, and the type of annuity you are taking out. The older you are when you purchase your annuity, the greater the annual income you may receive from it.<\/p>\n

Current annuity rates in 2023 are at a level comparable to annuity rates between 2005 and 2008, which were the highest rates during the last two decades. This makes the current annuity rates an appealing concept when compared to the values of years before 2022.<\/p>\n

This rise in annuity rates was brought about by a rise in interest rates, bringing a positive impact on the value of income from an annuity.<\/p>\n

The Different Types of Annuity<\/h3>\n

The classification of the annuity you take out can determine how much income you receive from your pension, along with conditions on when it may stop. Some of the key types of annuities are:<\/p>\n