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In this short video, we’re talking about whether choosing an annuity or an approved retirement fund (ARF) is the best option for retirement. Annuities provide you with a guaranteed amount of income every year until you die. You’re exchanging some or all of your pension for a guaranteed income stream for life. The benefit of annuities is that they protect you against longevity risk i.e. the risk of outliving the total amount of funds available in your pension.

However, if, when you retire, annuity rates are low, then the annual income you receive will also be low. The lump sum that you use to purchase an annuity is a sunk cost. If you happen to die earlier than anticipated, with a standard lifetime annuity, your family gets nothing. The more flexibility you add to your annuity (i.e. minimum guarantee periods, reversions and inflation protection) the lower your annuity rate will be.

ARFs on the other hand don’t offer protection from longevity risk, but they do offer wealth preservation on death. The key consideration for ARFs is investment performance and how you balance this performance with ARF withdrawals. In my opinion, ARFs are the better choice!

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LEARN MORE ABOUT: Retirement Annuities

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As people approach retirement, they are faced with the decision of how to best manage their retirement savings. Annuities and Approved Retirement Funds (ARFs) are two popular options for retirees, each with its own set of advantages and disadvantages. But which is best for retirement?

Annuities are a type of investment product that provides regular payments to the investor over a specified period of time, typically for the rest of their life. There are several types of annuities, including immediate annuities and deferred annuities, each with their own unique features.

One of the key advantages of annuities is the guaranteed income stream that they provide. This can be particularly appealing for retirees who are concerned about outliving their savings. Annuities can also offer tax-deferred growth, meaning that the investment can grow without being taxed until the funds are withdrawn.

On the other hand, ARFs provide a more flexible approach to retirement savings. ARFs allow retirees to invest their savings in a wide range of assets, such as stocks, bonds, and mutual funds, and to make regular withdrawals to provide income in retirement. This flexibility can be appealing for retirees who want to have more control over their investments and the potential for higher returns.

However, ARFs also come with certain risks. The value of the investments in an ARF can go up or down, meaning that retirees could potentially see their savings decrease if the market performs poorly. There is also no guarantee of an income stream, as there is with annuities.

So, which is best for retirement? The answer ultimately depends on the individual’s financial goals and risk tolerance. Annuities can provide a sense of security with guaranteed income, while ARFs offer more flexibility and potential for higher returns. Some retirees may even choose to use a combination of both, using an annuity to provide a base level of guaranteed income and an ARF to provide additional flexibility and growth potential.

It’s important for individuals to carefully consider their options and consult with a financial advisor to determine the best approach for their specific circumstances. In the end, the decision of whether to invest in an annuity or an ARF should be based on a thorough evaluation of the individual’s financial situation, long-term goals, and risk tolerance. Both annuities and ARFs can play a valuable role in retirement planning, and the best choice will depend on the unique needs and preferences of each retiree.