4 September 2017

Question of the week

Is it better to make a joint investment or two separate investments?

That's a good question. It really depends on how much certainty you need and what the age difference is between you and your partner.

Firstly, let's spell out how the 2 options would work.

If you made a joint investment, your income rate would be based on the age of the younger partner. If one of you passed away, the full income would be passed to the surviving partner for the rest of their life. If you both passed away, your remaining capital would be paid to your estate. Please bear in mind that the insurance premium for a joint investment is slightly higher at 1.75% p.a. as you are insuring two lives instead of one.

If you invested half your investment under each partner, each partner would receive a different income rate depending on their age. If one partner were to pass away, the surviving partner would receive the deceased partner's remaining balance but not their income. The insurance premium for this option is lower than a joint investment at 1.35% p.a.

So what should you do?

It depends what you value most: certainty or income.

A joint investment will give you the most certainty. As a couple, you will have a known level of income that is guaranteed for life, regardless of how long either of you live. However if there is a large age gap between you and your partner, you will get a lower income rate (as the income rate is based on the age of the younger partner). The smaller the age gap, the more favourable a joint investment becomes.

Unless you and your partner are the same age, two separate investments will give you the most income as a couple. It will also save you money as the insurance premium is lower. However, if one partner were to pass away, the surviving partner would receive that partner's remaining balance but not their income. While this initially looks like a big downside, it's helpful to keep in mind that retirees tend to spend less as they get older and the surviving partner may require less income as they are now supporting only one person. The surviving partner could also reinvest the deceased partner's balance back into Lifetime and receive a higher income rate when they do (as they will likely be older when this occurs).

What could your retirement income be?