Financial literacy: Guaranteed Income products

30 September 2019

When it comes to retirement, you’ll have a number of choices to make regarding the super nest egg you’ve built during your working life.

Among these options are Guaranteed Income products. Let’s take a look at what these are, the benefits and risks, and who’s eligible.

What is a Guaranteed Income product?

Guaranteed Income products offer you a tax-free, regular income stream that helps you avoid financial risks in retirement.

They operate as non-account based pensions which provide fixed payments in exchange for an initial investment of money.

As the name suggests, they’re the opposite of account based pensions, which only last as long as there’s money in the account. Instead, with LGS, you have two options:

  • The LGS Lifetime Guaranteed Income – this enables you to invest for your lifetime, or for your lifetime and that of your spouse (if you choose this option).
  • The LGS Fixed Term Guaranteed Income – here, you can select a period between one and 40 years. You also have the option to have some of the initial investment repaid at the end of this term.

The benefits

  • Long-term security
    These products, and especially the LGS Lifetime Guaranteed Income, can help retirees manage the risk of outliving their financial assets.
  • Easier budgeting
    Your monthly income is consistent, and will not be dependent on the conditions of the financial market or the performance of your investments.
  • Continued standard of living
    As well as facilitating budgeting, you’re protected from longer-term market declines that could otherwise impact your standard of living.

The risks

As with all investments, LGS Guaranteed Income accounts carry some risks. These include:

  • You are essentially locking up your money for an extended period of time.
  • If you choose to terminate your account early, you may potentially receive significantly less back than the amount originally invested. You may also affect your social security benefits or experience adverse impacts on your overall financial circumstances.
  • The risk that the provider (for LGS, this is Challenger Life) may not be able to make the payments from the account when they are due.

That’s why it’s always important to speak to your financial planner before making any financial decisions. 

Is there any flexibility?

LGS Guaranteed Income products allow you to tailor your account to your own needs, with features such as:

  • a range of payment frequencies for your income
  • a voluntary withdrawal period
  • payment indexation to help manage inflation risk
  • a reversionary spouse nomination or binding death benefit nomination.

Who’s eligible for LGS Guaranteed Income products?

To open an LGS Guaranteed Income account, you’ll need to:

  • be at least 60 years old
  • open the account through an LGS financial planner
  • use unrestricted, non-preserved super money to establish the account.

It’s important to remember that a Guaranteed Income account may not be suitable for everyone. That’s why you should talk to your financial planner first. Request an appointment with an LGS financial planner today.

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The information on this website is of a general nature only and does not take into account your personal objectives, situation or needs. You should consider obtaining professional financial, taxation and or legal advice tailored to your personal circumstances prior to making any financial decision.