How much money do I need to invest in an annuity?

14th February 2012

When it comes to purchasing an annuity, one of the most important things that you have to figure out is how much money you want to invest in that annuity. As your annuity income will provide you with a method of finance for the rest of your life, it’s an important decision and you need to ensure that your initial investment is enough to cover you throughout your retirement.

What do I need to take into consideration?

When it comes to deciding how much money you need to invest in an annuity there are many things that you need to take into consideration and these include:

  • Desired income amount – How much money do you want to be receiving each year for the rest of your life? Naturally the higher your investment the more money that you will receive from your annuity each year
  • Inflation – How will inflation affect your retirement income? Have you taken inflation into account when you have calculated how much money you require each year?
  • Retirement age – If you choose to retire earlier then you may need to put a higher amount of money into your annuity compared to someone who may require one or several decades later, to yield the same annuity income.

Why is purchasing an annuity such a big decision?

When you purchase an annuity it is a lifetime decision and as a result, you need to make sure that your annuity plan is one that suits you, as once you purchase it you are unable to change it. Each annuity provider can give you different options for your income and dependent on your circumstances this could either give you a higher or lower annuity income, so it’s worth shopping around before you make the decision.

What factors can influence my annuity income?

There are many factors which affect your annuity income such as health, age and your general life expectancy. Some providers may also take into account your lifestyle habits and the area that you live in. If you do suffer from long-term illnesses or you are in a situation where your life expectancy could be shortened, then it may be well worth shopping around for your annuity to find a provider which gives you a benefit or higher income as a result. 

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