Demand for annuities is rising sharply as rates hit a 15-year high, says Nick Flynn, retirement income director at Canada Life. “Many still prefer drawdown, but you could mix and match. Annuities can be bought in tranches as you move through retirement, securing a better rate as you age.”
Verdict: Annuities offer the security of a guaranteed lifetime link for as long as you live, but lack the freedom and flexibility of drawdown.
Stocks and shares. FTSE 100 shares are another popular source of dividend income, and the index currently yields 3.99 percent a year.
Investors should also enjoy capital growth when share prices start rising again, said Victoria Scholar, head of investment at Interactive Investor. “They need to be patient and there are no guarantees.”
Companies aim to increase their dividends over time, which helps your income keep pace with inflation but your capital is at risk, says Laith Khalaf, head of investment analysis at AJ Bell.
Some stocks can offer sky-high yields, for example, Legal & General Group currently yields 8.76 percent a year.
That’s staggering rate of income and L&G has a strong balance sheet and plenty of capital strength, so this dividend looks safer than most. It’s still notably riskier than cash, though.
Most investors spread the risk with an equity income fund that invests in a blend of different stocks. The popular City of London Investment Trust has a proud track record of increasing its dividend of the year for more than half a century. It currently yields 5.19 percent with an annual charge of just 0.33 percent.
Verdict: Shares will always be volatile so only buy with a minimum five-year view, and ideally 10 years or more.
Perhaps the most sensible thing to do is to spread your money across all four asset classes, according to your attitude to risk. Consider financial advice.
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