CNN Money has been making “best of” lists for awhile now. One of their latest lists, “Best New Investment Ideas,” lists the deferred income annuity right at the top. They also mention a few other great investment ideas, but let’s start off with the annuity. In the category of “Best new retirement tool….that you might be using wrong”, the authors voted for the newly popular deferred income annuity. Sales of this product will top $2 billion this year, a giant leap from last year’s sales. Deferred income annuities are insurance against outliving your money in the future. Just last week, I blogged about Annuity FYI’s top recommended longevity annuities, many of which are deferred income annuities. You pay an insurance company a lump sum of money and start receiving lifetime income at some point in the future.
Deferred income annuities were originally just used for long deferral periods, with most people opting to start their payments when they were in their 80s. One of the reasons that they have increased in popularity recently is because of some new marketing from the insurers. Some companies are allowing investors to start receiving their payments as soon as 13 months into the future rather than waiting decades. This is where the second part of this category heading comes into play, “…that you might be using wrong”. One advisor says that the insurance feature is fantastic, but cautions against taking the money too soon. He recommends deferring payments until your mid-70s or 80s to take advantage of a much better return. The article points out that these annuities are just like all of the other insurance policies that you carry. You might never collect on the policy to which you’ve paid your money. However, if and when you do collect, you will be very happy that you bought this insurance against outliving your savings.
One’s savings is best invested in multiple accounts. For your bond portfolio, the article tells you the “Best new way to build a better bond portfolio”. There is a different type of exchange traded fund that is new to the markets. It allows you to ladder your bond purchases using diversified corporate bond funds. Next, the “Best new index fund”, according to this article, is the Vanguard Total International Bond. These recommendations by the authors of the CNN Money article should be discussed with your own financial advisor before making any purchases. These financial experts say that deferred income annuities are the best new retirement tool, they are certainly worth a look. It’s hard to find insurance against outliving your savings in retirement; deferred income annuities are one of the only ways to do so.
Watch our video to learn more about deferred income annuities.
Written by Rachel Summit