Do you know how much income you could get from an annuity?
Our free annuity calculator helps you estimate how much income you could receive by using some or all of your pension savings to buy an annuity.
Enter your pension pot, your age and other details. The calculator then estimates the income you could receive from an annuity based on the information you provide.
This can help you answer an important question: could an annuity provide the retirement income I need?
The result is an illustration rather than a guaranteed annuity quote. The income you could receive will depend on factors including your age, pension size, annuity type, options selected and the rates available when you buy.
What is an annuity?
An annuity is a financial product that can provide you with a regular income in retirement in exchange for some or all of your pension savings. A lifetime annuity can provide an income for the rest of your life, helping to provide certainty about how much money you will receive. Depending on the type of annuity you choose, your income may stay the same or increase over time.
Unlike pension drawdown, where your remaining pension stays invested and the amount you can take may change over time, an annuity can provide a more predictable income.
However, buying an annuity is an important decision. Once you have used your pension savings to buy an annuity, you will generally not be able to change your mind or access that money in the same way as you could with an invested pension.
How much income could I get from an annuity?
The income you could receive depends on a number of factors. These can include:
- your age when you buy the annuity
- the size of your pension pot
- whether you choose a level or increasing income
- whether you include a spouse’s or partner’s income
- whether you choose a guaranteed payment period
- your health and personal circumstances
- the annuity rates available when you buy
Generally, the larger your pension pot, the greater the income you may be able to secure. Your age and the options you choose can also have a significant effect on the income available.
An annuity that provides a higher income initially may offer less protection against inflation, while an increasing annuity may start at a lower income but increase over time.
This is why it can be useful to compare different annuity options rather than focusing only on the highest starting income.
What types of annuity can I choose?
There are different types of annuity, and the right option will depend on your circumstances and the type of income you want in retirement.
A level annuity provides a fixed income that does not normally increase over time. This can provide certainty, but the purchasing power of your income may fall if prices rise.
An increasing annuity can increase your income over time, either by a fixed percentage or in line with an inflation measure. The starting income is usually lower than for a comparable level annuity.
A joint-life annuity can continue to provide an income to your spouse or partner after you die. This can provide additional financial security for your household, although choosing this option can reduce the income you receive while you are alive.
An enhanced annuity provides a higher income if you have a health condition or lifestyle factor, such as smoking, that is expected to shorten your life expectancy. The actual income depends on the insurer.
You may also be able to choose a guarantee period, which means payments can continue for a specified period after your death if you die during that period.
The options available and their cost will depend on the annuity provider and your circumstances.
Should I use my whole pension to buy an annuity?
You do not necessarily have to use your entire pension pot to buy an annuity. You could use part of your pension to secure a guaranteed income and keep the remainder invested or available for other purposes, depending on your circumstances and pension options.
For example, some people may use an annuity to cover essential household spending while keeping other savings or investments available for discretionary spending or unexpected costs.
Alternatively, you may decide that pension drawdown or another approach is more suitable for your needs.
The important thing is to consider how an annuity would fit alongside your other retirement income, savings and investments rather than looking at the annuity income in isolation.
Should I speak to a financial adviser about buying an annuity?
An annuity calculator can be a useful starting point, but it cannot consider every aspect of your financial circumstances. Choosing whether to buy an annuity involves decisions about your income needs, investment risk, inflation, tax, your health and how you want to provide for your spouse or partner.
A regulated financial adviser can help you assess your wider position and compare an annuity with other options, such as pension drawdown, while considering your other savings, investments and sources of income.
If you would like help deciding how to approach your retirement income, you can use the Trusted Advisor adviser matching service to find a regulated financial adviser suited to your needs. Alternatively, email our team at hello@trusted-advisor.co.uk and we can help you understand the next steps.