Expert reveals tips on how to save for retirement
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They could get anything up to £1,000 a year more, because their life expectancy is lower as a result. It’s a rare occasion where having unhealthy lifestyle can work in your favour. Those with a history of poor health can also claim higher income.
Typically, when dealing with financial services companies, an unhealthy lifestyle or serious medical conditions will work against you. For example, you will pay more for protection such as life insurance and critical illness cover.
That’s because insurance companies believe you are more likely to claim on your policy, so set higher premiums to reduce the risks.
This changes when you approach retirement and consider buying annuity.
Suddenly, being unhealthy works in your favour. Many people fail to realise this and miss out on huge sums as a result.
An annuity is the income for life you can buy with your pension savings at retirement. It offers security, because the income is guaranteed to continue for as long as you do, even if you live into your 90s or beyond.
That poses a risk for annuity providers, because the longer you live, the more income they will have to pay you. As a result, they offer you lower income.
This equation works in reverse for those with poor lifestyle habits or who have pre-existing illnesses.
Because their life expectancy is lower, annuity companies can afford to pay them more.
They do this by offering something called an impaired life annuity. Some could get up to 20 percent more income as a result.
Even common health conditions such as high blood pressure or diabetes could boost your income – every year for the rest of your life.
Many people miss out. They think they will be penalised for their poor state of health, when in fact they will be rewarded, says Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
The extra income you can get is stunning in some cases.
Morrissey says a 65-year-old married woman who doesn’t smoke or drink and has no health conditions would get income of £5,303 a year, from a £100,000 pension.
This buys her a level, single life income that does not rise with inflation or offer any spouse benefits on death.
By contrast, if the same woman had smoked in the past and suffered from diabetes today, she could get £6,123 a year.
That’s an incredible £820 a year more – which works out at around £68 spending money every month.
In this case, her lifestyle has given her 15 per cent more income.
Similarly, a healthy a 65-year-old with £100,000 of pension could buy a level, single life annuity paying just over £5,000 a year.
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Yet if he has a high body mass index, smokes 10 cigarettes a day, drinks 25 units of alcohol a week and is on medication for high blood pressure, he would get £5,947.
That’s an extra £947 a year, or £79 every month. For life.
His poor lifestyle has handed him a 19 per cent pay rise.
Morrissey said it is hugely important to give as much information as possible about your health when seeking annuity quotes.
“Many people feel they will be penalised for disclosing that they smoke or have a condition that impacts their overall health, but the opposite may be true. It pays to be as open as possible.”
Once you buy an annuity you cannot change it, she says. “It is therefore vital that you give the provider a full health update at the outset.”
An annuity isn’t right decision for everybody, but if you buy one make sure you generate the maximum income.
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