According to “Annuities: Boring is Better” by Peter Keating in Smart Money Magazine, immediate life annuities are the simplest form of the product and are best for many investors. Even for those retirees that plan for their future with a hefty portfolio, the risks of inflation and longevity could override all that planning. That is where annuities come into play. With an immediate life annuity, you can make a 401k annuity rollover to purchase the annuity from an insurance company in return for guaranteed lifetime payments. In the article’s example, the investor receives a payout each year equivalent to 8.4% of their original investment. While that percentage isn’t exactly comparable to bonds or savings accounts, there is a large tax benefit because all payouts from your initial investment are tax-exempt.
While Keating advises some investors to stick with the basics when it comes to annuities, he acknowledges that some annuity “bells and whistles” add great benefits. The guaranteed minimum payout option ensures that your heirs receive payouts for 5 or 10 years if you pass away. Inflation-indexed annuities start with a lower monthly payment, but increase by a percentage over the years to keep up with the rising cost of living. Keating believes that purchasing a basic immediate annuity is good for the majority of retirees, while the other types of annuities have different benefits for different types of investors.