Living annuity

What is the difference between a guaranteed annuity and a living annuity?

Aguaranteed annuity will provide an income that is guaranteed to last for your whole life (and your spouse’s, if applicable), but your heirs won’t be able to inherit whatever is left on your death. In other words, your capital dies with you. Typically, you also have no say over your initial income and no flexibility to make changes once you’ve purchased the product. There are various types of guaranteed annuities e.g. those that provide an income that increases with inflation, those with a level income, those that depend partially on market returns.

On the other hand, a living annuity provides you with flexibility to choose your income each year (subject to regulatory limits) and where your money is invested. Any remaining capital after your death passes to your heirs. However, in exchange for this flexibility, you take on the risk that you outlive your savings and the risk that your investment returns are poor. This means that your future income could fail to keep up with inflation, or even that you outlive your savings.

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