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When Annuities Are a Good Deal

In “Annuities: Buy right or not at all,” Dennis Miller offers an honest look at annuities for MarketWatch readers.  I appreciate the examples he gives and it coincides with the advice with which we try to instill at Annuity FYI.  Annuities are great vehicles to help you reach your financial retirement goals.  Each product is not right for each investor, however.  It is crucial to tailor your annuity to your individual needs and be sure to get multiple quotes and evaluate each rider that you consider adding to your product.

When asked if you are getting a good deal on an annuity or if they are actually good investments, the honest answer is typically that it depends.  It depends on a lot of factors, mainly when you die.  But as Mr. Miller points out in his article, at that point you won’t really care.  That is why I often stress the insurance factor related to annuities.  You buy them to insure yourself against running out of money in retirement.  Sometimes they make a “good” investment where your return is greater than your initial investment.  But if they don’t, they are still a good investment in your future.  You will continue to receive income payments until death and never have to worry that you’ll run out of money.

The first place to start when shopping for an annuity is a single premium immediate annuity with lifetime and death benefits, according to Mr. Miller.  With a $100,000 purchase, a 65 year old man could receive $5,900 yearly purchasing an annuity today.  If he died before receiving the entire $100,000 paid out, his family would receive the remaining money as a death benefit.  Some people think that even though you essentially are receiving back all of the money you put in, if you don’t get more than the $100,000 you are losing out by loaning your money interest-free to the insurance company.  That’s one way to look at it, but remember that you had insurance against outliving your money and living a long lifetime.

Adding a rider to increase your payments for inflation is another hotly debated annuity topic.  Your payments will be significantly less for a few decades, up to 30%.  Mr. Miller thinks its better not to add the rider for inflation, take the higher consistent payments, and try to set some of that money aside into savings for the future.  He does say that those with a lot of longevity in their family history and people worried that their spouse doesn’t know much about finances still might want to opt for the inflation rider.  Mr. Miller offers some other monetary examples in his article as well to help people decide if an annuity is right for them.  Shop around and do your research to make sure you are making the best decision.

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