Many advisers still use age 75 as a benchmark for annuity purchase at outset.
There are good reasons – the effect of mortality drag and improved predictability of spending. However, as the client ages, a more individual approach should be taken. In most cases annuity purchase should be phased across several years, capturing investment gains and consolidating these into a secured income for life, progressively increasing the longevity assurance while still retaining some flexibility and scope for further investment growth.
5. Revise the plan over time
Cashflow models are necessarily built on assumptions made at a single point in time and as such are unlikely to be mirrored by the client’s actual experience. As a result the most essential part of ensuring clients do not run out of money is to keep reviewing the model and take action when things change.
This could mean having to accept a cut in income for a while or, more happily, taking advantage of greater than expected growth on the funds. An ongoing review service is not just an exercise, it is a vital component of post-retirement advice.
Summary
- Consider the life expectancy of your client. Unless there is a reason to think otherwise assume they will exceed average life expectancy.
- Carry out a cashflow analysis of how the client’s funds can be paid to them over this period.
- Consider at what point to introduce longevity insurance.
- Review the situation on a regular basis to take into account what has actually happened in the client’s life and investment markets.
Fiona Tait is technical director of Intelligent Pensions
