You contribute towards a retirement annuity for many years and whether you realize it or not, you have an expectation of certain quality of life after retirement. Sadly many retirees are very disheartened the day they sit down and look at the final numbers. Reason for this can be one of many, but most probably include:
1. Unrealistic expectations created by your financial advisor. When a broker or financial adviser gives you a forecast of what you can expect, he/she makes certain assumptions. These assumptions include the inflation rate over the long term, growth rates over the long term and premium growth. Life is never stagnant, and these assumptions will change over the long term. If you do not review your RA annually, you are destined to be disappointed.
2. Taking out an RA and leaving it as is. Here financial advisers and clients are equally guilty. Clients take out RA’s and hope it provides them income and then when the RA does not meet their expectation they are disappointed in the insurer or the advisor. They do not make the time and effort to see a financial adviser yearly to see if they are on track. Advisers are also guilty in the fact that they sell RA’s and forget about the client.
3. Costs on your RA. Clients should make sure their adviser does not write maximum high commission and costs on the RA. This can make the RA extremely expensive over the long term. If you sign a quote with 4% costs per year, we assume the market grows with 10% over the long run, you give 40% back in costs, you are again destined to be disappointed. As a client you have every right to ask questions regarding all the costs on your policy, from adviser remuneration to platform costs.
With the issue of costs, you really cannot single out one provider as a provider with high costs. The adviser makes all the difference, an adviser that truly carry your best interest at heart and knows their product, can cut back on commission and use cost effective funds, which can bring costs down from 4% to as low as 1.7% for managed funds. Please note the emphasis on “managed funds” you can use tracker funds and get the costs even lower, but that present a totally different risk on its own which is not in the scope of this article.
Retirement annuity's can play a major role in your lifestyle after retirement, like everything in the financial industry it have to be done with care and skill. You need to use someone that knows their product and is in the industry for the long run with you - Choose wisely!
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