Annuity NZ - retired couple

Annuity

A guaranteed retirement income

Your retirement's a new adventure. It’s the reason you’ve saved all those years. But now that you’re finally here, how do you know your savings will last as long as you do?

Your pay cheque for life

Annuities are very popular overseas, and now knowledge about them is growing in New Zealand. Milestone Direct have a special relationship with New Zealand’s first and largest provider of modern annuities, so can help you turn your savings into a fortnightly income that’s guaranteed to last the rest of your life, no matter how long you live.

Regardless of what happens to interest rates or financial markets, the income you receive is insured and guaranteed for life.

How does it work?

When you invest into an annuity, your savings are invested in a balanced fund and your income is insured to make sure it lasts as long as you do. This balanced fund is very similar to a KiwiSaver fund and for maximum diversification is managed by multiple investment managers. The fund is designed to grow your nest egg and make it last as long as possible. Regardless of what happens to interest rates or financial markets, the annuity income you receive is insured and guaranteed for life.

All investment returns from the fund are credited to your account. Fees, tax, and your fortnightly income payments are debited from your account.

Over time, your regular income withdrawals may deplete your savings, but this doesn't mean you'll run out of income. This is because the fund has longevity insurance, which makes sure you keep getting your regular income payments, for life.

With an annuity, you get certainty. You know you’ve got money coming in every fortnight to pay the bills, just like when you were working. You also don’t have to worry about stock market crashes or low interest rates affecting your income. If you need to withdraw some or all your savings down the track, you can. It’s your money and it’s always available. If you pass away, your remaining capital will go to your estate.

Your fortnightly payments can start any time after you turn 60 and will continue for the rest of your life, no matter how long you live.

Invest individually or jointly with your spouse

You can invest individually or together with your partner. Investing individually insures and guarantees your personal income for the rest of your life. Should you pass away, all remaining capital will go to your estate.

Investing with your partner insures and guarantees your income for both of your lives. This means that if one of you were to pass away, the income will remain the same and be transferred to the surviving partner for the rest of their life. Should you both pass away, all remaining capital will go to your estate. If you choose to make a joint investment, your income rate is based on the age of the younger partner.

Get your income now or later

Your fortnightly income payments can start from the day you turn 60 and will continue for the rest of your life, however long you live.

You can also choose to invest and hold your income for a few years. This can help you grow your savings and your future income while you're still working.

How much will I get?

The initial amount of money you invest is called your protected income base. You can invest anything from a minimum of $25,000 to a maximum of $1,000,000.

Your guaranteed income is called your withdrawal benefit. This is a percentage of your protected income base. Your withdrawal benefit rate is based on your age when you first start receiving income. You can start your income any time after you turn 60. Tax will be paid on your behalf at your normal PIE tax rate and all tax and fees are deducted from your account.

This means that your fortnightly withdrawal benefit is paid into your bank account net of both fees and tax.

Payment rates

The table below show the rate you'll be paid, depending on your age. Two examples are shown beneath the table.

Age at first income payment Annual withdrawal benefit rate after fees & tax Age at first income payment Annual withdrawal benefit rate after fees & tax
60 4.50% 76 6.10%
61 4.60% 77 6.20%
62 4.70% 78 6.30%
63 4.80% 79 6.40%
64 4.90% 80 6.50%
65 5.00% 81 6.60%
66 5.10% 82 6.70%
67 5.20% 83 6.80%
68 5.30% 84 6.90%
69 5.40% 85 7.00%
70 5.50% 86 7.10%
71 5.60% 87 7.20%
72 5.70% 88 7.30%
73 5.80% 89 7.40%
74 5.90% 90 7.50%
75 6.00%

Example 1: You’re 65 and want to invest $100,000. What will your income be?

At 65, your withdrawal benefit rate will be 5.00% per annum after fees and taxes. Your protected income base will be equal to your initial investment of $100,000. This will give you an insured income of $5,000 per annum paid into your bank account at a rate of $192 every fortnight for life.

If you pass away, all remaining capital will go to your estate.

Example 2: You’re 75 and your partner is 77. You want to invest $150,000. What will your income be?

Because you are making a joint investment, your withdrawal benefit rate will be based on your age, as you are the younger partner. At 75, your withdrawal benefit rate will be 6.00% per annum after fees and tax. Your protected income base will be equal to your initial investment of $150,000. This will give you an insured income of $9,000 per annum paid into your bank account at a rate of $346 every fortnight for life.

If either you or your partner pass away, the full withdrawal benefit will be transferred to the surviving partner for the rest of their life. Should you both pass away, all remaining capital will go to your estate.

What happens if your circumstances change?

As no one knows what’s going to happen in the future, it’s important that your finances have the flexibility to cope with whatever life throws at you. You can:

  • Withdraw your full account balance without penalty
  • Withdraw up to 20% of your investment as a lump sum without penalty. Your income will be recalculated to take account of this
  • Have your remaining balance go to your estate if you pass away
  • Invest additional sums to top up your income.

What now?

For a free, no obligation consultation with an Authorised Financial Adviser about whether an annuity might be right for you or other retirement planning options, call 0508 MILESTONE (0508 645 378) or leave your details and enquiry below.