When asked by a reader if it makes sense to put some of their money into an annuity, CNN Money’s Walter Updegrave recommends an immediate annuity to most people. His article, “When buying an annuity makes sense,” says that all types of annuities have pros and cons. He believes that an immediate annuity is one of the best ways to get a steady income stream from your retirement income. After a lump sum payment to an insurance company, an immediate annuity guarantees you monthly income checks for your entire life. This isn’t the only benefit immediate annuities provide though.
They can give you more sustainable income than other investments which give you the same return. While it isn’t really something you’d like to think about, immediate annuities are safe investments because investors’ payments are based on “mortality credits.” Some investors will inevitably die prematurely while others will live much longer than expected; this is what allows insurance companies to offer these income guarantees. Owning an immediate annuity along with stocks and bonds gives you one of the best chances at having the highest level of sustainable income to last your lifetime.
There are ways to combat the main downsides that some people see in annuities. You definitely rely on the strength of your insurance company to make your annuity payments forever, so choose wisely or divvy your money up between multiple insurers. There are also some state guarantees for annuity money, much like FDIC insurance for banks. If leaving money to your heirs is a concern, you can either make your annuity a death benefit annuity, or set aside specific money in stocks and bonds for your heirs. The author recommends an immediate annuity for many investors. He says that those who have so much money that they don’t have to worry about running out and those who have enough coming in from Social Security and pensions to cover living expenses are the only groups who probably wouldn’t benefit from an annuity.
Written by Rachel Summit