Don’t be surprised if you’ve not heard of an annuity. They’re relatively new to the New Zealand market. In it’s most simple form, a lifetime annuity in NZ is an investment providing a guaranteed income for the rest of your life.
An annuity involves an investment of money into a fund, which then provides the investor with guaranteed fortnightly payouts as long as they live. This income is insured, which means that changes to the financial market won’t affect the amount of money that’s paid out.
These payouts allow you to continue paying your bills after you retire, just like you did when you were working. The money’s not locked into a system, either. If you need to withdraw some, or all, of your capital from the fund, you can.
Here is more detail on how a lifetime annuity in NZ works:
You invest a lump sum of money into a balanced fund. This income is insured, which means that it is guaranteed for the rest of your life, regardless of how stock prices or interest rates change.
Regular withdrawals from your lump sum are used to fund your income payment. This payment is deposited on a fortnightly basis into your nominated bank account.
The money is then yours to use how you’d like, whether it’s paying off household bills, or to go towards the holiday to Greece you've always wanted to take.
What’s more, a lifetime annuity in NZ allows you to withdraw your remaining account balance at any time. If you pass away, any remaining balance will then be paid to your estate.
When you invest in an annuity, your savings get invested into a balanced fund, similar to a KiwiSaver fund. Your income will be insured to last as long as you do. That means that you will receive guaranteed payouts for life, no matter what happens to the market or investment rates. This offers real certainty - you know that whatever happens, you’ll have regular money coming in to pay your bills, just like it did when you were working.
A lifetime annuity in NZ is a ‘variable’ annuity, making it much more flexible than its historical counterparts. You can withdraw some or all of your investment at any time. The money isn’t lost when you die, either. All your remaining money goes to your estate when you pass away.
One fact that is often overlooked is that guaranteed income is not a return on investment. It involves costs, like insurance premiums, management fees, and taxes that are debited from your account.
This means that as these fees are charged, the fund makes returns, and your guaranteed income is paid out, your initial investment will decrease year after year.
The concept of a lifetime annuity in NZ is relatively new to our financial markets. What’s more, annuities are quite a complicated financial construct. This means that it is essential that you carefully consider your options before investing in one.
If you’re looking for a qualified investment advisor who can help guide you on the best financial options for your needs, the team at Accord can help. We have over 30 years of experience, and will work closely with you to offer a personalised assessment of your financial situation and the best policies for your needs.
So if you’re ready to explore what options are available to secure your future, whether it’s a lifetime annuity in NZ or a different plan altogether, just get in touch with our friendly team at 027 446 4475 / firstname.lastname@example.org today.