Level Income vs. Escalating Income
Level Income Versus Escalating Income
A level annuity (on a single life – see below) is the cheapest annuity you can buy. This guarantees a fixed level of income for the rest of your life, with no changes, and therefore pays out the highest amount on day one compared with other options.
However, the average retirement can now last more than 20 years. Inflation will therefore start to eat into the buying power of that fixed income unless some provision is made to increase it.
An escalating annuity can help. They pay out less on day one but the escalation rate you choose – which can be 1% pa, 3% pa, in line with inflation or even higher – helps to secure some or all of the buying power of that income over the longer term.
There is no doubt that income drawdown can be a complicated area of financial planning and one where a bit of professional help can prevent you making some potentially costly mistakes. At A&J Wealth, we have both the experience of the market and of the investment options availbale to help you avoid these mistakes and set yourself up for the comfortable retirement you deserve.
Consequently, if this is an area of interest for you, or you are simply looking to ask questions about it, please do not hesitate to get in touch.
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