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A guide to annuities

What is an annuity?

An annuity is a financial product that can be used to provide you regular income in retirement.

Annuities provide a guaranteed regular income for life or for a chosen investment term, helping to give peace of mind in retirement.

An annuity can complement other retirement investments and sources of income, such as a pension from your super and the Age Pension. They can be used as the foundation of your retirement portfolio.

Types of annuities

Here’s a quick guide to the different types of annuities available:

Lifetime annuities

Will pay you a guaranteed regular income for life, regardless of how long you live, helping to give peace of mind in retirement.

Features at a glance:

Guaranteed regular payments for life (and your spouse’s life if you choose).
Payments that start immediately or, for some payment options, on a future date you choose (if using super savings to invest).
Payments that can keep pace with inflation.
Can pay a lump sum death benefit to your family or estate within a known withdrawal period.
Can offer the flexibility to withdraw and be paid a lump sum within a known withdrawal period if your circumstances change.
You can use your super or personal savings to invest.
Payments are tax free if you use your super to invest and you are aged 60 or over.

Term annuities

Provides a guaranteed, regular income for a fixed term you choose with flexible capital return options at maturity.

Features at a glance:

Regular payments for a fixed term of your choice.
You can choose the frequency of your payments.
You can choose to have your investment repaid at the end of the fixed term or have some or all of it repaid throughout the fixed term as part of your regular payments.
Payments that are guaranteed regardless of how share markets perform.
You can use your super or personal savings to invest.
Payments that are tax free if you use your super to invest and you are aged 60 or over.

Benefits of annuities

Guaranteed regular income – they provide a guaranteed regular income, either for your lifetime or for a fixed term of your choice.

Protection from key retirement risks – they give you an additional layer of protection for life or for a chosen investment term. They can act as a safety net.

Helping you to spend confidently in retirement – annuities can be used to help cover your living costs and maintain your standard of living while in retirement.

Why choose an annuity?

Retirement is a life changing event. As you adjust to your new lifestyle, you’ll need to think differently about your finances.

Moving from earning an income to drawing on your retirement savings and investments can be a big shift mentally. And it can bring up financial concerns you haven’t thought too much about before, such as:

The risk of outliving your retirement savings and becoming completely reliant on the Age Pension.
The impact of market conditions on the value of your investments during your retirement.
The risk that over time inflation will increase the cost of living. This means the income received from your investments may also need to increase in line with inflation to maintain your standard of living.

Annuities can help to address these concerns so you can relax and enjoy your retirement.

Is an annuity right for me?

When determining whether an annuity is right for you, it may help to focus on what your retirement goals are in more concrete terms. For example, working out how much your basic expenses are, how much you will need for a more comfortable lifestyle, if the Age Pension will be enough or whether you need an additional source of income to meet these goals.

If you value the security of a guaranteed regular income for a fixed term or for the rest of your life, then an annuity may be a suitable investment option for you. In all cases, we recommend you speak to a financial adviser.

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