Plan Your Retirement Income With Single Premium Deferred Annuity
A single premium deferred annuity is one of the most solid and dependable investments you can make. It is a way of sheltering your investment against taxation while it builds towards your retirement, allowing you the possibility of replacing some of the pension income which is now being eroded. Pensions are becoming ever less stable as the years go by, with inflation reducing their spending power, and an increase in the aged population meaning there are fewer funds to go round. It makes sense to take control of the situation and plan your own retirement if you are able to do so.
The tax break is the great advantage offered by the single premium deferred annuity, but it is important not to over concentrate on this. A tax efficient investment is useless unless it can generate enough income for tax to be paid on in the first place. Annuities have the great benefit of being guaranteed, and are a great starting point for your overall retirement plans. Combining them with other instruments can give you an even better chance of having your retirement income needs completely met.
One of the most common ways of achieving this is by the use of a split annuity, combining a standard deferred annuity with an immediate one. The idea behind this is that the immediate annuity provides an ongoing income, while the deferred annuity continues to grow in the background. If the figures can be worked out so that the deferred annuity keeps refreshing the principal over time, the income level can be maintained.
This system can be especially useful in meeting mortgage payments. Although there is unlikely to be any income left over during the time the mortgage is being paid, the payments should continue to be met. Mortgage payments are relatively easy to calculate, and they vary little over time in comparison with other investments. By the time you reach retirement, you could be in a very good situation. If the mortgage payments have been met and the loan paid off, you could own your home outright. You could also have a monthly income from the payments which are longer needed to pay the mortgage.
There is just one hazard you need to watch out for with a single premium deferred annuity, and that is when it comes to passing on your wealth to your heirs. Annuities are treated differently from other investments, and they are harshly treated for inheritance tax. The annuity works best when it is providing an income for your retirement. If your goal is to pass wealth to your children or other heirs, you will be better off looking at life assurance policies which act in a similar way to annuities. For retirement income, though, nothing beats the solidity of a single premium deferred annuity.
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