Whether you are male or female can make a big difference when it comes to your annuity rates. But in some cases, it doesn’t make any difference at all. Because of this, there are certain situations where men and women are best suited to make different decisions when it comes to how they purchase their annuity products. Linda Koco of Annuity News discussed this in her Insurance News Net article, “How Sex Can Sell Annuities.” Basically, when you are making the decision whether to take a lump sum payout or annuitize your traditional pension, you should consider that these defined benefit plans use gender-neutral rates when figuring out your annuity rate. Traditional annuities that are sold outside of these DB plans use gender-distinct rates, so men and women get the rates tailored to them.
The use of gender-neutral annuity rates makes it more favorable for women to elect annuities from defined benefit pensions. It typically leaves males better off choosing the lump sum option and may disproportionately make it so that fewer males are choosing annuity options. That’s important because that could jeopardize the future retirement security of these males and even their spouses. By not opting for a lifetime annuity from your pension plan, you risk running out of money at some point in your retirement. Now there is another option for these males though. If they take the lump sum option from their DB plan, they can then rollover that money into a qualified deferred annuity in the open market. Those are the kinds that have gender-distinct rates and can get them a better payout. Some defined benefit plans actually offer rollover annuities outside of the plan that can help these males take advantage of lower fees and expenses than going out and shopping retail on their own.
Even though men often get a larger payout and can receive guaranteed income for life, many still do not opt for any kind of annuity. Hang-ups include the fear of the insurance company’s future, thinking they can do better elsewhere because of low interest rates, and losing the money upon death rather than passing it onto heirs. This question of what to do when withdrawing from a defined benefit or 401k plan presents a big opportunity in the financial world. It is crucial for advisors (both in plan and out) to show clients exactly what they have to work with in the future. You have a certain amount of money in your account. You could annuitize within your DB plan and get a specific amount of monthly income. Or you can take the money in a lump sum and annuitize it outside the plan for a different amount of monthly income. Finally, they can take the lump sum and try to invest elsewhere, which can result in running out of money during retirement.
Work with a professional to determine the best scenario for your specific retirement situation, often depending on whether you are male or female. Using part of your DB or 401k plan to purchase an annuity is often the best scenario. It provides you with monthly income to pay your expenses and leaves your other money available to invest elsewhere.
Written by Rachel Summit