Category Archives: Section 5

5.4 Income = outcome

Witty hill of beans reference

Chapter Overview
Outliving your income stream isn’t funny. It’s time to talk about annuities again

Immediate Annuity
This is the regular type we discussed earlier. I played around with the numbers a bit more and the older you are when setting up the annuity, the more attractive the income you get.  It also helps if you’re in poor health and are likely to die young for whatever reason.  I guess that this kind of thing might have a place at some point in the far, far distant future for us.

Deferred Annuity
There’s a good explanation of deferred annuities here and it seems that they are available in the UK.

One thing I really like about the SharingPensions web site is their easy analysis of the costs associate with various annuity options.

annuity costs

So, you want a joint annuity where your surviving partner continues to receive the same annuity payment?  That increases the annuity cost by 1% – and decreases the annuity payment by the same amount.

You want the annuity payment to be linked to the retail price index (index linked) – that’ll cost you an extra 2.57% ..

Clearly, annuities need to be very carefully evaluated because there’s no changing them (currently) once you sign on the dotted line.

Longevity Insurance
Judging by this December 2014 article, this isn’t available as a product yet in the UK.  I guess as our population of retirees grows and we live longer, this will be an inevitable addition to the stuff we’ll need to evaluate and make sense of with our old and addled brains ..

Fixed Indexed Annuities
I couldn’t find any UK mention of this kind of product, so I guess we’re lagging the US a bit.  While the book waxes lyrical about the pros of this kind of an insurance policy, this WSJ article seems to offer a more balanced perspective, as does this one.

AdvisorsExcel & Lifetimeincome.com
I couldn’t find any UK equivalent of this online purveyor of the above kind of annuity.

The lifetimeincome.com web site is pretty simple and US-specific. It just gives a ballpark annuity quote and an invitation to be contacted by their equivalent of an IFA.

5.5 Secrets of the ultrawealthy

secretsChapter Overview
If you’ve maxed out your pension and ISA contributions, how else can you invest tax efficiently?

Private Placement Life Insurance

PPLI sounds like a dream come true because of its tax advantages.  I wonder if the same kind of product is available in the UK?

It seems not.  From the lack of information available and the previous link indicating that things are looking up for the UK and European Private Placement Market, I don’t think you or I can go out and buy one of these things today.  However, this Wikipedia article mentions offshore PPLI solutions being widely used in Europe.

My guess is that PPLI is possible in the UK – but you need enough cash to make it worthwhile investigating the whole offshore malarkey.  It appears that the situation is similar in the US where only high net-worth individuals can access these kinds of policies directly.

That’s a shame, but it’s important to remember that this is a potential solution only if you’ve maxed out your annual pension contributions (£40K) and your ISA contributions (£15K).  These should be your first tax-efficient investment choices.

TIAA-CREF
The Teachers Insurance and Annuity Association of America offers PPLI-like policies to individuals who otherwise wouldn’t have access to them.  Do we have an equivalent in the UK?  Again, it seems not.

I’ve asked Teachers Assurance if they know of anything similar – and I’ll update this post when and if I hear back from them.

Living Trust
Unlike a will, a living trust may come into effect in one’s lifetime. A living trust can also avoid the time and cost associated with the probate period of a will, meaning that assets can be transferred relatively quickly and easily after one’s death.

For a DIY approach in the UK, Law on the Web is a good place to start.  The Get Your Shit Together site quoted in the book also looks good. For a more hand-held approach, Your Wealth has some good information.

Whatever route you take, thinking about estate planning sooner rather than later makes sense to me.