PART THREE – How to select a retirement annuity…
Firstly, I would advise you to speak to a registered independent financial advisor when looking at investing in a retirement annuity.
Once you have an independent financial advisor in place, pay attention to the following when looking at a retirement annuity:
What fees are you paying?
Every service provider in this space must provide you with a breakdown of costs… below is an example of this breakdown:
It gives you the breakdown of the fees, over a 1, 3, and 5-year period including up to your target date (retirement).
Compare the Effective Annual Costs (EAC) between different providers, how these fees impact your retirement outcome, what to consider when looking at these fees and what you can do if the fees are too high. The results are probably going to shock you.
Where are your retirement monies invested?
This becomes important as it impacts performance and costs.
Why?
Firstly, it impacts performance, as investing for retirement should have a long-term investment horizon, and it should be invested for growth. I have seen to many people invested in conservative investment portfolios or money market funds for retirement. Monies in a conservative investment portfolio or money market fund for 40 years will not get you to live comfortably at retirement – it will give you something, but not enough.
Secondly, costs, because high costs with low performance means you paying the provider to invest… I see plenty of this happening in the market… either poorly performing managers or invested in incorrect investment portfolios.
The entire retirement landscape has changed and continues to keep evolving. Is it time to reconsider how we retire? Is the traditional model even still an option? Or do we need to adapt and drive service providers to provide more options and products? Perhaps less regulation around what to invest in?
The basics however remain when looking to invest in a retirement annuity, and you need to consider the following 7 points below in putting a retirement annuity together:
- Understand your retirement journey and how you want to retire,
- Based on your retirement journey, put an investment strategy in place – allow for flexibility – things change,
- Understand retirement annuities, how they work, how they are regulated, when you can access your monies, what tax and other benefits you have in investing in a retirement annuity, ask the questions… if you don’t ask, you won’t know….
- Get a registered independent financial advisor to assist – they provide choice,
- Understand your investment strategy, what you are investing in, and how your strategy will help you reach your retirement goals,
- Understand how fees impact your investment journey to retirement– from penalty fees on old school products, to general fees paid by you as the investor, and
- Review annually with your registered independent financial advisor… don’t ever stop checking fees and performance, I don’t care how comfortable you are with well-known brands… keep on reviewing.