Income Annuities Eliminate Longevity Risk

New York Life recently published the article “12 things you need to know about Income Annuities” on their website.  This basic information is very useful for answering common consumer questions about this type of annuity.  Income annuities work by using some of your retirement savings and turning it into a stream of guaranteed lifetime income.  You make a one-time payment, or multiple premium payments, to an insurance company.  They will then send you income checks either monthly, quarterly, or yearly for the rest of your life.  Payments usually start at retirement or sometime after you have retired.  Your income is guaranteed by the insurance company from which you purchase your income annuity.  For instance, New York Life’s annuities are guaranteed by New York Life Insurance and Annuity Corporation.  Insurers are given ratings by different financial agencies so that you can make sure you are buying an income annuity from a reputable company.

The main benefit to an income annuity is that it eliminates longevity risk.  You are guaranteed monthly income benefits for as long as you live.  Income annuities also protect your retirement savings from declines in the stock market.  Your income is guaranteed and will not change if the stock market goes down.  Another benefit to income annuities is that they help consumers budget during retirement.  The guaranteed monthly income can be used for paying your basic living expenses.  Many people asked New York Life how they can change their name on an annuity contract.  Most insurers allow you to do that online, along with many other convenient change forms.

There is no fixed rate of return with income annuities like there is with other investments.  Your longevity determines the amount of income that you will receive.  In addition to receiving the income payments, you are also insuring your future self against running out of money at any point during retirement.  Payments can begin almost immediately with a single premium immediate annuity (SPIA).  Deferred income annuity payments can begin anywhere from 2 to 40 years after the annuity purchase.  You have the option to receive payments monthly, quarterly, semi-annually, or annually.  There are no health restrictions with New York Life’s income annuities.  Any age restrictions would depend on the type of annuity and benefits that you are purchasing.  There could also be age restrictions based on whether the funds you are using to buy your annuity are qualified or non-qualified.

Money to purchase your annuity can come from checking or savings accounts, inheritances, CDs, mutual funds, 401k’s, or pension plans.  Although you can usually combine the money from more than one source, you cannot combine qualified funds with non-qualified funds.  A financial advisor can help you determine how much of your money you should use to purchase an income annuity.  Use it as a piece of your overall retirement plan for the guaranteed income.  New York Life offers income annuities with minimum premiums of $5,000.  They also have income annuities with a “cash refund” option so that your heirs will receive any remaining money if you die before receiving all of your premium payments back.

One of New York Life’s most frequently asked questions is whether you can ever withdraw more than your monthly income from income annuities.  They have a few different options where you can.  Their Payment Acceleration Feature allows you to get 6 months of payments at once in the case of an emergency.  The next 6 months after that you will not get payments.  This option can be used no more than three times during the life of your income annuity.  New York Life’s Guaranteed Lifetime Income Annuity has a 100% cash withdrawal feature and a 40% cash withdrawal feature that allow one-time withdrawals.  These options are available on certain policies and only when the money is non-qualified.  Income annuities are a good way to guarantee lifetime income in retirement, so speak with an Annuity FYI expert if you have any more questions about them.

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