Explaining annuities

You’ve probably dreamt about what you would do if you won $1 million dollars on Lotto. But what if someone handed you $600,000 and said it had to support you for the next 30 years?

That’s the situation today’s young and middle-aged KiwiSavers will be facing when they retire.

The conundrum about what they should do with the money is sparking renewed debate about annuities – one of the easiest, and most endangered, ways to make sure your money lasts as long as you do.

An annuity is essentially a bet with an insurance company. You hand over a lump sum in return for receiving set monthly payments until you die.

You are betting that great-grandpa’s genes will keep you alive so you can go on collecting the money long after the original lump sum would have run out.

 

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