Should I buy an annuity with my pension fund now?

Question

I can buy an annuity with my pension now but my pension pot has decreased over the last 2 years. If I should delay buying it for 5 years would this be a better option hoping that the pot increases as the credit crunch ends.

Answer 1

If you want to get an annuity you should maybe consider a deferred annuity.  What this means is that you can put off (defer) receiving payments from your annuity for 5 years (for example).  Over the course of that time you can have the money you put into it grow.  Usually you would put your money into stock funds within the annuity that would have the ability to grow up until you finally need to start pulling money out (annuitizing).  

This might be a good option for you, talk to a tax consultant to make sure that you don't screw anything up during the transfer from your pension to the annuity or you might have to pay a bunch of taxes and penalties.  Also make sure that the insurance salesman selling you the annuity explains it well enough so that you completely understand how it will work and all of the fees involved before you buy it.  Don't get confused into buying something you don't understand, it is your retirement after all.

Answer 2

The big question you did not answer, and must answer first is: Do you need the income now?

If you do not need the income now there is NO reason to annuitize your pension.  However, there are plenty of annuities out there that are suitable for qualified funds (IRAs, 401Ks, Rollover Eligible Pension Plans) and do not require annutization at anytime.

If you wish to roll your pension to an annuity I would look into a tax deferred fixed or fixed index annuity.  1) Make sure you complete a proper rollover "per your employer guidelines" to avoid taxes and penalties. 2) Choose a reputable company. 3) Try finding a BONUS annuity that will make up some of your previous losses. 4) Try finding an annuity with a guaranteed lifetime income account, which allows income you can "TURN ON and OFF" as needed.  Best of luck!

Answer 3

Never purchase an annuity under any conditions.  You lose total control of all your money.  You should have zero expose to stocks or real estate.  The real crash has not even arrived!  If you are a government employee you should be in the G fund or money market funds for the next several years, this is not the 80's or 90's, with yearly double digit stock gains.  Suzie Orman, and Rich Dad Poor Dad both indicate 2015 may be the year the economy will improve.  Do you want a 20 dollar bill in your hand or a 20 dollar gold piece?  Do more research!  The market is not making a comeback.