Words are funny things. Their meanings change over time, as does their usage.
One word that appears to be undergoing a metamorphosis right now is “retirement”. According to the Oxford English dictionary, retirement is:
“the action or fact of leaving one’s job and ceasing to work”
However, in addition to the above, dictionary definition, the word also conjures up images of somebody who has not only stopped working, but does very little of anything. Thus, a further definition of retirement is “seclusion”.
Now, however, with increasing life expectancy and better health, people who may have “retired” from the workforce are remaining active in the community and are anything but “secluded”. Travel has been one big growth area, and the CEO of Flight Centre, Graham Turner, recently said he expected this to continue long term. His reasoning – airfares had fallen steadily over past decades as bigger and more efficient aircraft come into service.
Then there are those deciding to stay in the workforce beyond traditional “retirement” ages, or alternatively working part-time.
Market researchers tell us that people are less and less attracted to the word “retirement”.
Anyway, whatever the word, the need for a later life income source persists. Eventually, we will all slow down (or look for lifestyle choices outside of full-time work) and need to replace wages as our chief source of income.
In previous eras (long ago) one source of income was a “lifetime annuity”. In exchange for a lump sum, it provided an income for life.
However, they were designed for the old form of retirement – where inactivity and seclusion were often defining elements, and life expectancy was short. They were inflexible, did not provide access to capital and did not give protection against inflation. It was very poorly suited to the modern form of retirement (whoops: later life lifestyle).
Now, Challenger Financial Group have re-worked annuities so they better fit the modern retirement lifestyle.
Importantly, they have kept the annuity’s main feature – lifetime income. Thus, if you buy an annuity you can be sure it will keep paying for as long as you are alive and you don’t have to worry about the ups and downs, ins and outs of financial markets.
In addition, they have added other important benefits.
INDEXATION
You can have the level of income adjusted each year, in line with changes (up or down) to living costs.
ACCESS TO CAPITAL
You can opt to have access to the remaining capital, during the first 15 years or death. Also, if you are under age 71 when you take it out, Challenger guarantee 100% of your capital is available after 15 years. For older commencement ages, the guarantee is a lesser amount.
This feature of indexed income and capital access ,makes the annuity more like an indexed bond, than an annuity.
(If you don’t want your money back after 15 years, you can keep getting the indexed income for the rest of your life.)
AGE PENSION
In addition, there is the possibility (depending on your total position) that you could receive additional age pension each year – in addition to normal age pension increases. This is because the value of the annuity is reduced each year for assets test purposes.
INTEREST RATE
Finally, the interest rate compares well with general market rates. The actual rate varies with commencement age and other factors, but think in terms of 5% – and remember, it is indexed.
FINALLY
It is unlikely that an annuity is the total answer to retirement (whoops – later life lifestyle) income. But, for many people, it is important part of the answer and builds a solid, low risk base.
(Note: This is a summary only, and you should not make any decisions based on what is written here. You should only invest after reading and understanding the relevant Product Disclosure Statement issued by Challenger Life Company Limited).
