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Income Annuity Mimics Missing Pensions

Stephen Lomsdalen of Marketwatch suggests that annuities are the newest sexy pension in his article “Life-only annuity: A sexy pension alternative?”  In the 1990’s, instead of using their 401k and Thrift Savings Plan retirement money as a pension from their company, most people rolled their savings into an IRA in retirement.  The stock market always was a wise choice for your savings and allowed retirees to live out a successful financial retirement.  That certainly is no longer the case and workers would be thrilled to have the pension option once offered by employers and not always taken.  The past decade has seen two large declines in the market that have Americans longing for the pensions of the past and looking for new ways to create lifetime streams of income.

While a single premium income annuity (SPIA) doesn’t have all the bells and whistles of some other annuity products and can be labeled as boring, it’s becoming a popular choice as a pension alternative.  CDs, Treasurys, and Bonds aren’t looking like the best places to have money due to low interest rates and other reasons, so conservative investors want some safe guaranteed income options.  That is why Lomsdalen calls SPIAs a new sexy alternative to meet retirement income needs.  Life-only annuities pay you for the rest of you lifetime, but don’t leave anything to heirs in the case that you die before receiving your premiums back.  This is a good option for people who are single or who have other investments which they plan to leave to their heirs.  Using the life-only option gives you the highest possible yearly payout for your annuity.

The article offers an example scenario of a single 70 year old man with $1,000,000 to invest in a SPIA.  Many of us would be thrilled to have such an amount in retirement, but spending down that money too fast is easier than you may think.  By investing his money in a life-only single premium income annuity, the man will receive $80,000 yearly for the rest of his life.  The money is guaranteed as long as he invests with an insurance company that is stable and will be around.  Since this man had other assets to invest elsewhere and had a family and personal history suggesting it would be likely for him to at least live until age 85, this was a good annuity product choice for him.  If he had a spouse or children to which he wanted to leave money should he die sooner than anticipated, he could choose a spousal or refund option rather than the life-only.  His payments would be a little less, but his heirs would be cared for as well.  A SPIA is a good substitute to traditional pensions of the past for many people.

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